United States District Court, W.D. Virginia, Danville Division
JACKSON L. KISER, Senior District Judge.
On October 16, 2012, Plaintiff Frank Skinner ("Plaintiff") filed an action against Defendants Armet Armored Vehicles, Inc. ("Armet"), and William R. Whyte ("Whyte") (collectively "Defendants") pursuant to the qui tam provisions the False Claims Act, 31 U.S.C. § 3729 et seq. The United States elected not to intervene in the action. (See Notice of Election by U.S. to Decline Intervention, Aug. 14, 2014 [ECF No. 18].) Plaintiff served both Defendants with a summons and a copy of the Complaint on May 22, 2014, and Defendants have moved to dismiss the Complaint. Before me are Whyte's Motion to Dismiss for Lack of Personal Jurisdiction [ECF No. 39], and Armet's Motion to Dismiss for Failure to State a Claim [ECF No. 41]. The matter has been fully briefed, and the parties appeared before me on July 29, 2014 to argue their respective positions in open court. For the reasons stated herein, I will grant Whyte's Motion to Dismiss, and I will grant in part and deny in part Armet's Motion to Dismiss. Plaintiff will be allowed fourteen (14) days to file an amended complaint, if he so chooses. See Fed.R.Civ.P. 15(a)(2).
I. STATEMENT OF FACTS AND PROCEDURAL BACKGROUND
A. The Contracts
Armet is a designer, manufacturer, and seller of armored vehicles. (Compl. ¶ 2 [ECF No. 3].) Armet was founded in 1993 and has its headquarters in Miramar Beach, Florida. (Id. ¶ 9.) It has manufactured and sold armored vehicles to police departments, government entities, the military, and high-net-worth individuals around the world. (Id. ¶ 2.) Whyte is the owner and Chief Executive Officer of Armet. (Id. ¶ 10.) According to Plaintiff, Whyte "personally manages and supervises all the operations of Armet in Florida, Virginia, and Canada." (Id.) In 2005, Whyte hired Plaintiff to be President of Armet.
Following the United States' invasion of Iraq in 2003, the Department of Defense conducted the majority of its contracting for operations in Iraq through the United States Joint Contracting Command in Baghdad, Iraq ("JCCI"). (Id. ¶ 18.) On or about April 17, 2006, JCCI issued a solicitation of work to acquire twenty-four (24) armored vehicles for use by personal security forces tasked with protecting American and Iraqi officials traveling in or through Iraq. (Id. ¶ 19.) Armet and Whyte responded to the solicitation four days later and, four days after that, JCCI awarded the contract ("0028 Contract") to Armet at an agreed-upon price of $4, 779, 693.36. (Id.) Under the terms of the contract, Armet was to deliver four (4) armored truck to Iraq within forty-five (45) days, and an additional twenty (20) trucks by July 31, 2006. (Id.) The contract called for payment per vehicle of approximately $199, 000.00. (Id.)
On June 1, 2006, JCCI issued another solicitation to build an additional eight (8) armored gun trucks. (Id. ¶ 20.) On June 18, 2006, JCCI awarded a second contract to Armet in the amount of $1, 593, 231.10. (Id.) Armet was to deliver the gun trucks to Iraq within ninety (90) days, and the awarded payment per vehicle was $199, 000.00. (Id.) Both contracts detailed the specifics for armoring the vehicles, as the vehicles would routinely be used to ferry individuals through hostile and dangerous parts of war-torn Iraq. (Id. ¶ 21.)
Despite the 0028 Contract's requirement that all twenty-four armored gun trucks be delivered by July 31, 2006, Whyte and Armet failed to ship a single truck by that deadline. Defendants shipped the first two trucks on August 12, 2006, and the third and fourth on October 17, 2006. (Id. ¶ 25.) Upon delivery of each armored truck, Defendants submitted a "Material Inspection and Receiving Report, " along with an invoice, to JCCI. (Id. ¶ 26.) Defendants prepared these reports in their offices in Florida and Virginia. (Id.) The United States paid approximately $199, 000.00 per vehicle. (Id. ¶ 27.)
On or about November of 2006, Defendants requested a cash advance of approximately $1, 000, 000.00 from the United States government. (Id. ¶ 28.) "Defendants told the JCCI that they needed these funds to continue to produce the armored gun trucks under the two contracts with the JCCI." (Id.) JCCI approved a "progress payment" of $824, 531.00 for Armet and wired that amount to Armet's bank account. (Id.) Despite receiving that payment, Defendants delivered and billed for only three (3) additional armored gun trucks. JCCI accepted the first two trucks and paid over $398, 000.00 for them, but declined to accept or pay for the third. (Id. ¶ 29.)
On February 11, 2008, JCCI issued a "Show Cause Notice" to Defendants notifying them that Armet was in breach of the contract for failure to make delivery of the vehicles as agreed. (Id. ¶ 30.) Defendants attempted to terminate or renegotiate the contracts in March 2008, and JCCI terminated the contracts that month. (Id.) In total, of the thirty-two (32) vehicles that Defendants agreed to deliver under the contracts, Defendants only delivered seven vehicles. (Id. ¶ 31.) JCCI accepted six. (Id.) Defendants billed $1, 194, 923.36 for those six vehicles, and received a total of $2, 019, 454.36 in federal funds from JCCI, including the December 2006 progress payment. (Id.)
In its quotes to JCCI for both contracts, Armet asserted that the vehicles would meet the ballistic and blast protection standards set forth in the solicitations. (Id. ¶ 33.) These specifications were ultimately adopted in the two contracts entered into by Armet and JCCI. (Id. ¶ 33.) Nevertheless, "[n]one of the six armored vehicles Defendant[s] delivered to the Government met the ballistic and blast protection requirements of the Contracts." (Id. ¶ 32.) In addition to failing to satisfy the B7 ballistic protection standards and lacking sufficient blast protection, at least five of the armored vehicles Defendants delivered did not have "run-flat" tires. (Id.) Plaintiff alleges that Defendants were aware that the armored trucks failed to meet the contract specifications regarding ballistic and blast protection standards, yet continued to manufacture, ship, and bill JCCI for the vehicles. (See id. ¶ 35.) Regarding the December 2006 advance of $824, 531.00, Plaintiff alleges that Defendants diverted those funds to other business and personal expenditures rather than use the funds to build and ship the vehicles ordered by JCCI. (Id. ¶ 36.)
B. Plaintiff's Role with Armet and Uncovering the Fraud
Originally, the vehicles were to be manufactured at Armet's Florida facility under Plaintiff's supervision. (Id. ¶ 38.) Before construction began, however, Whyte moved the production to Armet's Ontario facility, and Plaintiff was transferred to Armet's Danville facility. (Id.)
After Whyte moved production of the vehicles to Ontario, Armet's Florida plant engineer, Scott Verona, informed Plaintiff of several defects in the design of the vehicles. (Id. ¶ 39.) Following that conversation, Defendants missed their initial deadline to deliver the vehicles and then immediately manufactured four vehicles within a month's time. (Id.) Plaintiff became suspicious of Armet's ability to comply with the highly specialized contract it had entered into with JCCI, and Plaintiff spoke with Whyte to verify that the vehicles were being built according to JCCI's specifications. (Id.) Whyte became angry at Plaintiff's inquiry, but assured him that the vehicles complied with the contract specifications. (Id.)
Plaintiff's fears were not assuaged. (Id. ¶ 40.) In October 2006, Plaintiff sent the foreman of Armet's Danville facility, John Ventimiglia, to Defendants' Ontario facility to inspect the operation's compliance with JCCI's specifications. (Id.) Ventimiglia reported to Plaintiff that the vehicles were not meeting the ballistic and blast protection standards. (Id.) Soon thereafter, Plaintiff reported Defendants' misconduct to the Federal Bureau of Investigation ("FBI"). (Id.) Plaintiff began working with the FBI as a confidential informant while the FBI put together a case against Defendants. (Id.) From the inception of the investigation, Plaintiff was under explicit instructions to keep his role confidential. (Id.) Numerous government agents and personnel repeated those instructions during the six-year investigation. (Id.) Ultimately, Defendants were indicted by the Government on July 19, 2012, and Plaintiff was released from his confidentiality directive on that date. (Id.)
On October 16, 2012, Plaintiff filed a qui tam action under seal in this Court alleging that Armet and Whyte violated the False Claims Act, 31 U.S.C. §§ 3729, et seq. (See Mot. to File Compl. in Camera and Under Seal, Oct. 16, 2012 [ECF No. 1].) The United States elected not to intervene in Plaintiff's action. (See Not. of Election to Decline Intervention, Aug. 14, 2014 [ECF No. 18].) Plaintiff obtained service on Armet on September 24, 2014. (See Return of Service, Sept. 14, 2013 [ECF No. 24].) Following two extensions, Plaintiff was able to obtain service on Whyte on May 22, 2014. (Return of Service, May 22, 2014 [ECF No. 38].) On June 12, 2014, Whyte filed a Motion to Dismiss for Lack of Personal Jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2), and Armet filed a Motion to Dismiss for Failure to State a Claim pursuant to Rule ...