District Court Grants Partial Summary Judgment In Favor of Government Contractor Based on Plain Language of Commercial Warranty
On September 4, 2015, the District Court for the District of Columbia granted partial summary judgment in favor of a government contractor, finding that the plain language of an applicable commercial warranty could not render claims for defective products false under the FCA because the warranty simply required the contractor to replace any products that did not live up to the warranty. U.S. ex rel. Westrick v. Second Chance Body Armor, Inc., et al., Nos. 04-280, 07-1144 (D.D.C. Sept. 4, 2015). A copy of the court’s decision can be found here. The district court rejected partial summary judgment motions filed by both the contractors and the government for claims that concerned a revised commercial warranty that expressly included a measurable quality guarantee, finding a material fact in dispute based on multiple reasonable interpretations of the revised warranty.
In two related civil actions, the United States alleged that Second Chance Body Armor, Inc. and Toyobo Company, Ltd. contracted for Toyobo to supply synthetic fiber for use in manufacturing Second Chance bulletproof vests. The federal government then bought or paid for Second Chance bulletproof vests through two different programs – the General Services Administration’s Multiple Award Schedule (“MAS”) program and the Bullet Proof Vest Grant Partnership Act program. The government alleged that Second Chance and Toyobo violated the FCA because they knew that the bulletproof vests were unable to maintain their bullet-resisting efficacy during Second Chance’s five year warranty period, did not inform the government about the degradation, and intentionally released false information into the market claiming that there were no degradation concerns.
The primary basis for the government’s FCA allegations regarding the MAS program rested on Second Chance’s standard commercial warranty. The warranty, which both sides agreed was part of the contract, stated that the vests were:
warranted to provide protection as stated on the protective panel label and to be free of defects in material and workmanship for the applicable warranty period . . . . The protection properties of the PANELS are warranted for five (5) years from the date of purchase . . . . If a defect is found in material or workmanship . . . during the applicable warranty period, return the vest directly to SECOND CHANCE. SECOND CHANCE, in its discretion, without cost to you, will repair or replace the defective part or the entire vest.
The defendant moved for partial summary, arguing that the commercial warranty language did not create liability under the FCA. The district court agreed. First, the district court held that defendants did not submit any claims that were factually false because “[t]he government’s claim [was] not that it did not receive bullet proof vests, but that the bullet proof vests in this case did not comply with express and implied agreements.” Id. at 15. The court then analyzed the government’s claim under a legal falsity theory, and determined that no FCA liability attached to the warranty because “Second Chance’s warranty reasonably bears only one promise – – if the bullet proof vests become defective within five years, they will be repaired or replaced.” Id. at 27. The court noted that “nothing in the language of the warranty explicitly guarantees that the vests will function perfectly for the five-year period,” and that the government had “conflate[d] two distinct ideas: defectiveness and durability.” Id. at 26. The court held that the parties had not contracted for a durability requirement but, rather, the warranty provided for a solution (repair or replacement) if durability issues arose. Id. at 27. The court ultimately concluded that “[i]t may very well be a poor business decision to put a product into the market with a warranty that the manufacturer knows the product cannot satisfy, but poor business decisions do not necessarily create an express false certification claim under the FCA.” Id. at 26. The court therefore granted defendant’s motion for summary judgment for claims based on the standard commercial warranty.
It is noteworthy that the court rejected both defendant’s and the government’s motions for partial summary judgment on a later revised commercial warranty that included a guarantee that Second Chance’s vests would perform to a specific durability standard. Id. at 21, 31. The court held that neither party had put forward evidence at this stage to negate opposing reasonable interpretations of the guarantee. Id.
In light of the court’s decision in Second Chance, government contractors should closely analyze the language included in any commercial warranties or guarantees provided to the government as part of any solicitation, contract, or amendment to a contract. The Second Chance opinion suggests that simple promises to repair or replace defective products, by themselves, cannot create FCA liability, but any guarantees that include measurable durability standards could create liability under a legal falsity theory.