in the united states district court for the … 2:12-cv-00920-ssv-alc document 89 filed 04/02/13...

Case 2:12-cv-00920-SSV-A LC Document 89 Filed 04/02/13 of 19

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF LOUISIANA

United States of America ) )

v. ) )

Bollinger Shipyards, Inc. , ) Bollinger Shipyards, Lockport, L.L.C., and ) Halter-Bollinger Joint Venture, L.L.C. )

CA No. 2:12-cv-00920-SSV-ALC

Section "R" 5

Judge: Sarah S. Vance

Magistrate Judge: Alma L. Chasez

UNITED STATES' RESPONSE TO DEFENDANTS' MOTION TO DISMISS THE AMENDED COMPLAINT

Plaintiff United States hereby responds to the Motion to Dismiss the Amended Complaint

(R. Doc. 83) and Memorandum in Support (R. Doc. 83-1), filed by Defendants Bollinger

Shipyards, Inc., Bollinger Shipyards Lockport, L.L.C., and Halter Bollinger Joint Venture,

L.L.C., (colkctively referred to as "Bollinger").

THE FIRST AMENDED COMPLAINT

In 2000, the Coast Guard notified Bollinger of its concerns regarding the longitudinal

strength of Bollinger's proposed conversion of existing 110-Ft Patrol Boats (WPBs) to 123-Ft

WPBs. R. Doc. 74; ~ 14. In response, Bollinger notified the Coast Guard that the longitudinal

strength of the 123-Ft WPBs would exceed applicable American Bureau of Shipping (ABS)

standards by a factor greater than two. R. Doc. 74; ~~ 15-17.

In 2002, Bollinger submitted 123-Ft WPB data to the Coast Guard, pursuant to Contract

Data Requirements List (CDRL) provisions in the Coast Guard's prime contract with Integrated

1


Coast Guard Systems (ICGS). R. Doc. 74; ~ 20.1 Bollinger was required to provide the Coast

Guard with CDRL S012-11, a Hull Structure Load and Strength Analysis (HLSA). !d. In

submitting the HLSA, Bollinger was required by contract to accurately represent the 123-Ft

WPB 's delivered condition. R. Doc. 74; ~ 28.

By email dated August 27, 2002, Bollinger's CEO stated to Bollinger officers and

employees that (1) ABS review could result in a recommendation "to totally rebuild the hull," (2)

if ABS recommended rebuilding the hull, the Coast Guard would require it, (3) rebuilding the

hull would be "un-economical," and (4) the project would not proceed ifBollinger did nothing to

address the possibility of ABS review. R. Doc. 74; ~ 24. Bollinger then engaged in a course of

activity to avoid ABS review. Within days of the CEO's email, unidentified Bollinger

employees ran the Midship Section Calculator (MSC) application at least three times, changing

input data, and obtained midship section modulus results of 2836, 303 7 and 5232 cubic inches.

R. Doc. 74; ~ 25. For these application runs, Bollinger used input data that did not reflect the

vessel ' s actual structural characteristics, i.e. , false data, until it obtained a result sufficiently

exceeding the ABS minimum requirement to reduce the risks of ABS review identified by the

CEO. R. Doc. 74; ~ 27.

On September 4, 2002, Bollinger submitted to the Coast Guard an initial CDRL S012-11

that reported an actual section modulus of 5,232 cubic inches. R. Doc. 74; ~ 30. Bollinger then

falsely assured the Coast Guard that ABS would review the midship section modulus calculation

and longitudinal strength. R. Doc. 74; ~ 34. On December 16, 2002, Bollinger submitted its

1 The prime contract's provisions flowed down to Bollinger through its contract with an ICGS subcontractor, Northrop Grumman Ship Systems, Inc. (NGSS). R. Doc. 74; ~~ 11 , 12, 28, 33.

2


final version ofCDRL S012-11 to demonstrate that the primary hull strength of the final

configuration meets ABS requirements. R. Doc. 74; ~ 35. By stating in the CDRL that its

calculations met ABS requirements, Bollinger was contractually required to use ABS to certify

compliance with ABS standards. R. Doc. 74; ~~ 28, 35. Despite this contractual obligation,

Bollinger never requested ABS review of the midship section modulus calculation and

longitudinal strength, and ABS never performed this review. R. Doc. 74; ~ 34.

On August 20, 2004, a Bollinger vice president signed CDRL SO 16, falsely certifying

compliance with applicable contract requirements. R. Doc. 74; ~ 38. On September 10, 2004,

the USCGC MATAGORDA, the first cutter delivered, suffered a structural casualty that

included buckling of the hull. R. Doc. 74; ~ 39. Bollinger then recalculated the actual section

modulus, using the MSC software, and reported that the true section modulus was 2,615 cubic

inches. !d.

The Coast Guard notified ICGS that the MATAGORDA's failure reflected a latent

defect, and that the Coast Guard would not accept further deliveries until a structural fix had

been implemented to correct the defect. R. Doc. 74; ~ 41. ICGS made two structural

modifications to the vessels. !d. In reliance upon the feasibility of ICGS' modifications, the

Coast Guard accepted the delivery of vessels five through eight. !d. Between November 22,

2002 and December 26, 2006, or soon thereafter, the Coast Guard paid approximately $80

million in response to 77 requests for payment by ICGS for the work performed by Bollinger. R.

Doc. 74; ~ 42.

3


ARGUMENT

The Amended Complaint identifies four causes of action. The first two are pursuant to

the False Claims Act (FCA), 31 U.S.C. § 3729 et. seq., for knowingly making material false

statements and false claims for payment. 31 U.S.C. § 3729(a)(1)(B), § 3729(a)(1)(A). In

addition, there is a common law cause of action for fraud and an equitable claim for unjust

enrichment. These cognizable claims are stated with particularity.

I. The Allegations Must be Viewed in the Light Most Favorable to the Plaintiff

The Amended Complaint states claims for relief, with particularity, in accordance with

Fed. R. Civ. P. 12(b)(6) and 9(b). In deciding whether a complaint states a valid claim for relief,

a district court must accept "all well-pleaded facts as true" and view those facts " in the light most

favorable to the plaintiff." Sullivan v. Lear Energy, LLC, 600 F.3d 542, 546 (5th Cir. 2010), see

also Lone Star Fund V (US ), L.P. v. Barclays BankPLC, 594 F.3d 383, 387 (5th Cir. 2010).

Moreover, a district court must "draw all reasonable inferences in plaintiffs favor." Lovick v.

Ritemoney Ltd., 378 F.3d 433, 438 (5th Cir. 2004). The test is whether the complaint states

"enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 570 (2007). In Wilson v. Birnberg, 667 F.3d 591, 595 (51h Cir. 2012),

the court stated that:

Dismissal is improper " if the allegations support relief on any possible theory." Cine/ v. Connick, 15 F. 3d 1338, 1341 (5th Cir. 1994). The question at the motion to dismiss stage is whether, "with every doubt resolved in the pleader's behalf, the complaint states any legally cognizable claim for relief." 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357, at 640 (3rd ed. 2004). The inquiry focuses on the entirety of the complaint, regardless of how much of it is discussed in the motion to dismiss.

4


Id. at 595.

So long as the complaint contains "sufficient factual matter, accepted as true, to ' state a

claim to relief that is plausible on its face, " ' plaintiff will survive a motion to dismiss. Harold H

Huggins Realty, Inc. v. FNC, Inc. , 634 F.3d 787, 796 (5th Cir. 2011) (quotingAschcrofl v. Iqbal,

556 U.S. 662, 678 (2009), in turn quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570

(2007)) . A claim is "plausible on its face" if "the plaintiff pleads factual content that allows the

court to draw the reasonable inference that the defendant is liable for the misconduct alleged."

Huggins Realty, 634 F.3d at 796 (quoting Iqbal, 550 U.S. at 678).

As the Fifth Circuit noted, "Iqbal[' s] and Twombly' s emphasis on the plausibility of a

complaint's allegations does not give district courts license to look behind those allegations and

independently assess the likelihood that the plaintiff will be able to prove them at trial." Huggins

Realty, 634 F.3d at 803 n. 44. Rather, a district court's only task "is to determine whether the

plaintiff has stated a legally cognizable claim that is plausible." Lone Star Fund V (US.), L.P. v.

Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010). To survive a motion to dismiss, then,

the Federal Rules of Civil Procedure require factual allegations that merely "raise a right to relief

above the speculative level .. . on the assumption that all the allegations in the complaint are true

(even if doubtful in fact)." Twombly, 550 U.S. at 555. As such, "[d]etailed factual allegations"

are not required. !d.

For example, the Fifth Circuit recently reversed a district court's order dismissing a claim

under the Lanham Act- which, in general, prohibits false advertising- on the ground that the

5


district court failed to accept as true all well-pleaded facts . Huggins Realty, 634 F.3d 787? The

district court dismissed the complaint, finding the notion that lenders would have otherwise used

plaintiffs' services "simply too tenuous to support standing." !d. at 802. On appeal, the Fifth

Circuit held the district court erred by not accepting as true plaintiffs' allegation that lenders now

use defendant's database instead of hiring plaintiffs to perform new appraisals. !d. at 803 ("If, as

we must, we accept these allegations as true, it requires no speculation to conclude that

[defendant's] conduct caused the plaintiffs to suffer damages in the form of lost business and

diminished profits."). According to the Fifth Circuit, the district court misapplied Twombly and

Iqbal by characterizing plaintiffs' allegation as "too tenuous," and, in so doing, "denied it the

force to which it was entitled at this early stage of the litigation." I d. at 803 n. 44.

Likewise, the Fifth Circuit reversed a district court' s grant of a motion to dismiss a

breach of contract claim on the ground that the district court neither viewed the facts in the light

most favorable to plaintiff nor accepted plaintiff's allegations as true . Highland Capital Mgmt.

2 Under the Lanham Act, a plaintiff must plead that either the defendant's anti-competitive conduct "caused the plaintiff to lose profits" or "caused the defendant to gain profits in a definite and ascertainable amount." ld. at 801. In Huggins Realty, several real-estate appraisers asserted that: ( 1) defendant had created a web-based program which allowed lenders to order appraisals of real estate and allowed real-estate appraisers to transmit, upon receiving an order, the results of their appraisals to the requesting lenders, id. at 795; (2) defendant assured the real-estate appraisers that, aside from transmittal, it was not using the results of the appraisals in any way, id.; (3) notwithstanding such assurances, defendant had copied and warehoused the appraisal data on another database which, in turn, it marketed to lenders as an alternative to hiring appraisers, id.; and ( 4) as a result, real-estate appraisers lost profits because "more lenders would have used plaintiffs' appraisal services if the [defendant's database] had not been available." !d. at 803 n. 44.

6

Case 2:12-cv-00920-SSV-ALC Document 89 Filed 04/02/13 of 19

v. Bank of Am., 698 F. 3d 202, 207 (5th Cir. 2012).3 On appeal, the Fifth Circuit held the district

court erroneously viewed the "subject to" language as negating any intent to be bound. !d. at

207. According to the Fifth Circuit, the district court " ignore[ d] other facts pleaded" by plaintiff

- including the allegation that the parties "orally agreed to all material terms of the trade" and

that industry practice considered the agreement binding notwithstanding a subsequent email -

which, when "viewed in the light most favorable to" plaintiff," and " taking the above allegations

as true," make a viable claim. !d. Although the Fifth Circuit acknowledged that the bank may

eventually prove the parties never agreed to all material terms, "that is an issue of fact, and it

should not be a basis for dismissing the claim." !d. at 208. As such, the emails "do not clearly

negate an intent to be bound when viewed in light of (plaintiffs] well-pleaded facts." !d. at 210.

Bollinger requests the Court to draw inferences unfavorable to the plaintiff, contrary to

applicable precedent. For example, the Amended Complaint alleges that:

On August 27, 2002, CEO Bollinger replied that:

I'm concerned that [Kramek] sells CG on the fact that they need this review .. . . [ABS] would love the additional responsibility from the CG and as we both know, adverse results could cause the entire 123 to be an un-economical solution if we had to totally rebuild the hull . . . . MY CONCERN - we don't do anything - ABS

3 In Highland Capital Mgmt., a capital management company sued a bank for breach of contract, asserting that: (1) it orally agreed with a bank to all material terms of a debt trade, including description, amount, and price of the debt; (2) pursuant to industry practice, an oral debt-trade agreement is binding so long as the agreement includes all material terms; (3) subsequently, the bank confirmed the agreement via email, but added that the agreement was "subject to appropriate consents and documentation"; and (4) the bank later refused to settle the debt trade unless plaintiff agreed to additional terms not included in the oral agreement. !d. at 203-05. The district court dismissed the complaint, noting under the applicable law that "an enforceable contract requires a mutual intent to be bound," and, in turn, finding that "the parties' communications do not reveal an intent to be bound absent additional consents and documentation." !d. at 206.

7


gets CG to require it without our input, and the result is we BLOW the program.

Thus, CEO Bollinger indicated that Hamblin should take steps to avoid ABS review of the design of the complete hull, a review likely to have exposed the inadequacy of the structural integrity of the hull.

R. Doc. 74; ~ 24. From the CEO' s email, a reasonable inference can be drawn that the CEO was

concerned that (1) ABS review could result in a recommendation "to totally rebuild the hull," (2)

if ABS recommended rebuilding the hull, the Coast Guard would require it, (3) rebuilding the

hull would be "un-economical," and (4) the project would not proceed if Bollinger did nothing to

address the possibility of ABS review. !d. Other inferences are possible, of course, including

some that might be favorable to Bollinger's defense.4 Those more favorable to Bollinger,

however, may not be relied upon in addressing the motion to dismiss.

Bollinger argues that inferences favorable to the plaintiff cmmot be made from this email

exchange. R. Doc. 83-1 ; page 10. Bollinger states that favorable inferences cannot be made

because:

... the United States did not allege that Mr. Bollinger: (1) knew of any false hull strength calculations; (2) intended for the company to conduct false calculations in the future; (3) instructed anyone to make false calculations; or (4) otherwise provided false inputs .. ..

R. Doc. 83-1; page 10. The essence of Bollinger' s point is that the absence of specific

instructions from CEO Bollinger regarding how ABS review might be avoided is a reason for not

making any inferences favorable to the plaintiff.

4 An inference that the email recipients would ignore the CEO's concerns would not be reasonable.

8


The inference that should be made at the pleading stage, in accordance with applicable

precedent, is that the CEO left it to lower-level officers and employees to develop and implement

a plan for avoiding a program-blowing review by ABS. The course of action developed in

response to the CEO' s concerns is alleged, with particularity, in the amended complaint. R. Doc.

74; ~~ 25, 27, 30. It includes submitting false section modulus results to the Coast Guard to

alleviate concerns regarding the converted vessel ' s longitudinal strength, R. Doc. 74; ~~ 27, 30,

falsely stating to the Coast Guard that the primary hull strength of the final configuration meets

ABS requirements, R. Doc. 74; ~ 35, falsely representing to the Coast Guard that ABS would

review, or had reviewed, the vessel's longitudinal strength, R. Doc. 74; ~ 34, and falsely

certifying compliance with contract requirements, including those requiring ABS review. R.

Doc. 74; ~ 38.

II. The Amended Complaint States False Claims Act Violations

Review under Fed. R. Civ. P. 12(b)(6) begins by "reciting the essential elements of a

cause of action." Le.ffall v. Dallas Independent School Dist., 28 F. 3d 521 , 525 (5th Cir. 1994).

An FCA violation occurs when a person "knowingly makes, uses, or causes to be made or used,

a false record or statement material to a false or fraudulent claim," 31 U.S .C. § 3729(a)(I)(B).

The FCA defines "knowingly" to include "actual knowledge of the information," "deliberate

ignorance of the truth or falsity of the information," or "reckless disregard of the truth or falsity

of the information." I d. at § 3729(b )(l)(A). The FCA provides further that "no proof of specific

intent to defraud is required." Jd. at§ 3729(b)(l)(B). The Amended Complaint alleges each

essential element of the FCA violation, that Bollinger: (1) knowingly, (2) made, used, or caused

to be made or used, (3) a false record or statement, (4) material to (5) a false or fraudulent claim.

9

Case 2:12-cv-00920-SSV-ALC Document 89 Filed 04/02113 of 19

A. Bollinger Made False Statements ofFact

The Amended Complaint alleges "false record[ s] or statement[ s ]" under the FCA. 31

U.S.C. § 3729(a)(l)(B). In September and December 2002, Bollinger falsely stated to the Coast

Guard that the midship section modulus ofthe converted vessels was 5,232 cubic inches (or

inches cubed). R. Doc. 74; ~~ 27, 30, 35. After the failure of the first boat, Bollinger, ICGS, and

the Coast Guard investigated the causes and found that the actual section modulus was 2,615 -

not 5,232. R. Doc. 74; ~ 39. Bollinger acknowledged the falsity of the 5,232 cubic inches result

post-failure. !d. An email from a Bollinger vice president stated that Bollinger

... did lead the CG into a false sense of security by telling them early on that the Section Modulus for a 123 would be 5230 [sic] inches cubed as opposed to the real number, just above 2600.

!d. If a number just above 2600 is the "real" number, then the number Bollinger submitted must

be a false number. 5 Thus, Bollinger twice submitted a false number, 5232, to the Coast Guard.

B. Bollinger Had Knowledge of the Falsity of its Statements

As stated above, the FCA defines "knowingly" to include "actual knowledge of the

information," "deliberate ignorance ofthe truth or falsity of the information," or "reckless

disregard ofthe truth or falsity of the information." 31 U.S.C. § 3729(b)(l)(A). The FCA

provides further that "no proof of specific intent to defraud is required." !d. at § 3 729(b )(1 )(B).

The Amended Complaint alleges substantial evidence of Bollinger's FCA knowledge ofthe

falsity of the section modulus results submitted to the Coast Guard.

5 Bollinger' s motion draws a distinction between "false" and "incorrect" calculations. R. Doc. 83-1; page 8 n.7. According to Roget's IL The New Thesaurus (1980), synonyms for "false" include incorrect, inaccurate, untruthful, and wrong, among others. Thus, an incorrect, inaccurate, untruthful, or wrong statement could constitute a false statement under the FCA.

10


Evidence of Bollinger's - not any individual's -- actual knowledge of the falsity of the

5,232 cubic inches result is reasonably inferred from the CEO's express preference for avoiding

ABS review, R. Doc. 74; ~ 24, and Bollinger's subsequent multiple efforts to increase the section

modulus result by inputting false data into the computer application. R. Doc. 74; ~~ 25, 27.

Although negligence might reasonably be inferred from a single application run, multiple

application runs with false data inputs cannot reasonably be considered to be the result of mere

negligence. 6

Bollinger demonstrated its deliberate ignorance, or reckless disregard, for the truth or

falsity of its section modulus result by not complying with contractual requirements to obtain

ABS review or its own quality assurance procedures requiring calculations to be checked and

reviewed by management before submittal. R. Doc. 74; ~~ 24, 28, 31, 34, 36. One purpose of

such review requirements, especially review by ABS, is to reduce the risk of errors in the

performance of the engineering calculations.7 Bollinger's non-compliance with applicable

requirements for review of the vessel's section modulus shows, at a minimum, its "reckless

disregard for the truth or falsity" ofthe results. 31 U.S.C. § 3729(b)(l)(A).

6 Bollinger states that "An engineer' s math mistake simply is not enough to subject a company to FCA liability, trebled damages, and penalties. United States v. Southland Mgmt. Corp. , 326 F.3d 669, 682 (5th Cir. 2003) (' Innocently made faulty calculations ... cannot give rise to liability.')" R. Doc. 83-1 ; page 8. Innocently-made mistakes are not alleged in the Amended Complaint. That it took three attempts to obtain the high result, almost twice the minimum requirement, R. Doc. 74; ~~ 27, 35, shows the deliberateness of the effort.

7 Bollinger has failed or refused to identify the individuals involved in performing these calculations, and has failed or refused to provide the data inputs for the calculations. R. Doc. 74; ~26.

11


C. The False Statements were Material

The materiality standard under the FCA requires only that the United States show that a

defendant's false statements could have influenced the Government's decisions. As stated by the

Fifth Circuit:

All that is required under the test for materiality, therefore, is that the false or fraudulent statements have the potential to influence the government's decisions.

United States ex ref. Longhi v. Lithium Power Technologies, Inc., eta!., 575 F.3d 458, 469 (5th

Cir. 2009). Here, the false section modulus calculations submitted by Bollinger to the Coast

Guard easily meet this test. As plead in the Amended Complaint, Bollinger made false

statements to conceal from the Coast Guard a material risk in the 1101123-Ft WPB conversion

program. Bollinger's false section modulus submissions hid from the Coast Guard the risk that

the 123-Ft WPBs would have insufficient longitudinal strength to withstand primary bending and

secondary load forces given the known condition of the vessels. These false statements caused

the Coast Guard to accept delivery of vessels that would not have been accepted had an accurate

section modulus been provided. R. Doc. 74; ~ 40. Bollinger's false statements thus easily

satisfy the Fifth Circuit' s "potential to influence" test for materiality.

The materiality of these calculations was acknowledged by Bollinger in the post-failure

internal email from a Bollinger vice president that

... we did lead the CG into a false sense of security by telling them early on that the Section Modulus for a 123 would be 5230 [sic] inches cubed as opposed to the real number, just above 2600.

R. Doc. 74; ~ 39. Such a "false sense of security" could not result from immaterial statements.

Indeed, this statement demonstrates that Bollinger's false section modulus result had "the

12


potential to influence the government's decisions." Longhi, 575 F.3d at 469. Absent the false

sense of security provided by Bollinger's false section modulus result, the Coast Guard would

have taken steps to address the vessel' s inadequate longitudinal strength. R. Doc. 74; ~ 40.

Bollinger's avoidance of ABS review demonstrates further its recognition of the

materiality of the section modulus calculation to the viability ofthe project. R. Doc. 74; ~~ 24,

28, 34, 36, 40. A section modulus calculation well above the minimum requirement would

significantly reduce the risk of ABS review of the project and avoid a cost increase affecting the

viability of the conversion project. The Government has therefore adequately pled the

materiality element of its FCA claims.

D. Bollinger's False Statements Caused False Claims for Payment

Bollinger's claims for payment for the eight vessels delivered to the Coast Guard were

false because they requested payment for vessels that were not delivered. Bollinger represented

in its CDRL submissions that it would deliver 123-Ft WPBs with a 5,232 cubic inch section

modulus. Instead, Bollinger delivered vessels with a materially lower section modulus, 2615

cubic inches. The failure to deliver vessels in accordance with its CDRL submissions

representing the structural characteristics of the vessels renders false the billings Bollinger

submitted to higher-tier contractors for submission to the Coast Guard. In essence, Bollinger

invoiced for vessels it did not actually deliver.

In addition to their actual falsity, Bollinger's billings should be presumed to be false.

Billings under fraudulently-induced contracts, a different circumstance then alleged here, are

presumed to be false, even if the amounts are accurate. The Fifth Circuit stated that:

13


Under a fraudulent inducement theory, although the Defendants' "subsequent claims for payment made under the contract were not literally false, [because] they derived from the original fraudulent misrepresentation, they, too, became actionable false claims." United States ex rel. Laird v. Lockheed Martin Eng'g & Science Servs. Co. , 491 F.3d 254, 259 (5th Cir. 2007) (citing United States ex rel. Marcus v. Hess, 317 U.S. 537, 543-44 (1943)).

Longhi, 575 F.3d at 468. Similarly, billings for fraudulently-induced acceptances of delivery

under a contract, such as occurred here, are "actionable false claims." I d.

A "false record or statement material to a false or fraudulent claim" includes false

statements made in required submissions after contract award to induce the Government to

continue the program and accept delivery. Bollinger violated the FCA by knowingly making

material false statements in its CDRL submissions concerning the section modulus of the vessels.

These false statements caused the Coast Guard to accept delivery of vessels that did not possess

the structural characteristics represented by Bollinger in the CDRLs. Acceptance of delivery

proximately caused the payment of Bollinger' s invoices for the vessels. Whether or not the

claims for payment were "literally false," in the amount sought or otherwise, they are actionable

false claims because Bollinger' s false statements to the Coast Guard regarding the longitudinal

strength of the converted boats caused acceptance oftheir delivery. Jd.

III. The Complaint States Claims for Relief with Particularity

Bollinger's motion to dismiss identifies several additional points in an apparent effort to

demonstrate a lack of particularity in the Amended Complaint. R. Doc. 83-1; pages 1-2.

Bollinger states that the Amended Complaint does not " [a]llege any specific section modulus

value required under Bollinger's contract." R. Doc. 83-1; page 2. Bollinger, through ICGS,

proposed the 11 0/123-Ft WPB conversion project; it was not a project initiated or specified by

14


the Coast Guard. R. Doc. 74; ~ 12. Bollinger specified the section modulus value for the

vessels, in CDRL SO 12-11 , but failed to deliver vessels with the section modulus value it

specified.

Bollinger also states that the Amended Complaint does not " [a]llege that the lower 2002

calculations that went unreported were correct." R. Doc. 83-1; page 2. As alleged in the

Amended Complaint, with particularity, the two calculations lower than the reported result were

both the result of multiple false data inputs. R. Doc. 74; ~ 27. Thus, both were incorrect (or

false). They reflect repeated efforts to increase the section modulus result by inputting false data

to obtain a result high enough to avoid ABS review. Id. As discussed infra, the inference to be

made at this stage, in favor of the plaintiff, is that the multiple false calculations show an effort

by Bollinger to increase the section modulus result by changing the false data inputs. That it

took three attempts to obtain a result almost twice the minimum requirement, R. Doc. 74; ~~ 27,

35, shows the deliberateness ofthe effort.

Bollinger states further that the Amended Complaint does not " [ e ]xplain how T.R.

Hamblin' s 2004 email ... is in any way evidence of Bollinger' s intent when it calculated section

modulus in 2002." R. Doc. 83-1 ; page 2. The email evidences the materiality of the section

modulus result, not Bollinger' s 2002 knowledge. According to the email, the false section

modulus result gave the Coast Guard a "false sense of security" regarding the seaworthiness of

the converted vessels. R. Doc. 74; ~ 39. Thus, it is relevant to the materiality of the false

number, not to Bollinger' s knowledge in 2002.

Bollinger states that the Amended Complaint does not allege that Bollinger' s oral

statements to the Coast Guard regarding ABS review were material to payment claims. R. Doc.

15


83-1 ; page 2. Bollinger's false statements to the Coast Guard regarding ABS review

demonstrate Bollinger's deliberate ignorance or reckless disregard of the truth or falsity ofthe

section modulus result. They further demonstrate an effort to conceal the falsity of the result by

avoiding, or evading, review by an entity likely to determine the vessel's actual section modulus.

Bollinger states that the Amended Complaint does not allege that the section modulus

results were conditions of payment or delivery acceptance. R. Doc. 83-1; page 2. The section

modulus result reported to the Coast Guard effectively masked the weakness in the vessel's

longitudinal strength, or structural integrity. It is a misrepresentation of fact that proximately

caused both the acceptance of delivery and payment of Bollinger's claims.

Bollinger states that the Amended Complaint does not explain the significance of" ...

Bollinger' s August 2004 certificate of compliance regarding ABS review .... " R. Doc. 83-1;

page 2. On August 20, 2004, a Bollinger vice president signed CDRL SO 16, falsely certifying

compliance with applicable contract requirements. R. Doc. 74; ~ 38. On September 10, 2004,

the USCGC MATAGORDA, the first vessel delivered, suffered a structural casualty that

included buckling of the hull. R. Doc. 74; ~ 39. Had Bollinger informed the Coast Guard by

August 20, 2004, that ABS had not reviewed the vessel's structural integrity, instead of

certifying that it had, the Coast Guard could have taken steps to avoid the failure at sea, with a

crew aboard, that occurred approximately three weeks after the false certification of compliance.8

R. Doc. 74; ~ 40.

8 Bollinger incorporates by reference additional arguments made in its motion to dismiss the original complaint, which were not addressed by the Court. R. Doc. 83-1; pages 16-17. Should the Court reach these additional arguments, we respectfully incorporate by reference our response to Bollinger's first motion to dismiss. R. Doc. 49. As to the matters pending before the

16


IV. The Amended Complaint States a Common Law Fraud Claim

Bollinger states that the Amended Complaint still does not allege a specific intent to

defraud. R. Doc. 83-1; pages 18-19. In addition to the argument made in response to Bollinger' s

first motion to dismiss, R. Doc. 49; page 19, the Amended Complaint includes additional

allegations that show a specific intent to defraud. Bollinger's manipulation of the MSC

application, by inputting false data three times to increase the result, shows an intent to deceive

the Coast Guard as to the longitudinal strength of the vessels Bollinger stated they would deliver.

R. Doc. 74; ~ 27.

Conclusion

We respectfully request the Court to deny Defendants' Motion to Dismiss the Amended

Complaint. In the event the Court grants the motion on Rule 9(b) grounds, in whole or in part,

we respectfully request leave to file an amended Complaint to particularize further any deficient

allegations.

Respectfully Submitted,

STUART F. DELERY ACTING ASSISTANT ATTORNEY GENERAL

DANABOENTE UNITED STATES ATTORNEY

Court in the Government' s motion for reconsideration, R. Doc. 83-1; pages 17-18, we respectfully incorporate our memorandum in support of that motion. R. Doc. 73-1.

17


s/ Arnold M Auerhan MICHAEL D. GRANSTON ALAN E. KLEINBURD ARNOLD M. AUERHAN, T.A. DAVID B. WISEMAN ERIC SCHMELZER U.S. Department of Justice Civil Division Ben Franklin Station Post Office Box 261 (PHB 9130) Washington, DC 20044 Tele: (202) 307-0278 [email protected]

SHARON D. SMITH (17146) Assistant United States Attorney 650 Poydras Street, Suite 1600 New Orleans, LA 70130 Tele: (504) 680-3004 sharon.d.smith@usdoj .gov

18


CERTIFICATE OF SERVICE

I certify that a copy of the foregoing UNITED STATES ' RESPONSE TO

DEFENDANTS' MOTION TO DISMISS THE AMENDED COMPLAINT, has been

served upon all counsel of record to this proceeding by ECF on this 2nd day of April,

2013.

s/ Arnold M Auerhan ARNOLD AUERHAN Attorney for the United States

in the united states district court for the … 2:12-cv-00920-ssv-alc document 89 filed 04/02/13...

Documents