YANNACOPOLOUS v. GENERAL DYNAMICS (July 26, 2011)
In the early 1980s, General Dynamics had a consulting agreement with Dimitri Yannacopolous under which Yannacopolous helped a subsidiary market telephone equipment in Greece. The agreement was terminated in 1983. In 1987, General Dynamics agreed to sell Greece several fighter planes plus parts and services. The sale was conducted under the auspices of the United States' Foreign Military Financing program. Under that program, Greece purchased the planes from General Dynamics directly but with funds loaned to it by the United States government. When Yannacopolous learned of the sale, he demanded a commission. General Dynamics refused. Yannacopolous brought suit against General Dynamics and lost. Relying on information he obtained, at least in part, from discovery in that suit, he filed a False Claims Act complaint against General Dynamics. Judge Gettleman (N.D. Ill.) granted summary judgment to General Dynamics. Yannacopolous appeals.
In their opinion, Seven Circuit Judges Bauer, Sykes, and Hamilton affirmed. Under the False Claims Act, it is illegal to present to the United States a false or fraudulent claim for payment, to make a false statement material to a false claim, or to use a false record to conceal an obligation to pay. Individuals (known as "relators") are authorized to initiate civil suits under the Act on behalf of the United States and receive, in return, a percentage of any funds recovered. The elements of the claim are that: a) the defendants made a statement for the purpose of receiving money from the government, b) the statement was false, and c) the defendant knew the statement was false. Yannacopolous alleges several separate claims under the Act. He claimed that General Dynamics (or, in the case of d) below, Lockheed): a) lied about funds used to capitalize a Greek business development company, b) failed to disclose the deletion of the Economic Price Adjustment clause from the draft contract, c) made misrepresentations regarding spare parts purchases, and d) made misrepresentations in contract amendments. The Court considered each claim in turn. First, the Court rejected Yannacopolous's argument that General Dynamics breached the contract by charging to it its costs of establishing the Greek business development company. It did not violate the representation that "material" was of U.S. origin since the investment in the development company was not "material." Furthermore, there was nothing in the contract itself that prohibited these costs from being charged to the contract. In fact, it appeared that General Dynamics’ conduct was consistent with the contract. Yannacopolous also claimed that General Dynamics falsely certified compliance with respect to the business development company costs. Again, the Court rejected that claim, in part, because it related only to "material." It did concede that one certification neglected to explicitly refer to the contract. The Court concluded that no reasonable juror could find the omission material, since General Dynamics had recently submitted the contract for review. Second, the Court rejected Yannacopolous's argument with respect to the Economic Price Adjustment Clause deletion. The draft contract contained such a clause. It reduced the contract price because of the economic benefit General Dynamics was going to receive from advance payments. Greece agreed to delete the clause, however, in exchange for General Dynamics' agreement to deliver the planes on an accelerated schedule. Before General Dynamics submitted any invoices, it sent a letter to the government explaining that the clause was no longer applicable. Even if General Dynamics failed to comply with paragraph 10 of the Certification Agreement that required notification of any changes in the clause, the deletion of the clause was immaterial. Third, the Court rejected Yannacopolous's argument with respect to spare parts. Under the contract, $70 million was allocated for spare parts, including hardware and services. The services element was not subject to change but the hardware portion of the charge was understood to be an estimate, subject to recalculation at the end of the contract period. General Dynamics continued to submit invoices including spare parts charges after Greece decided to purchase some spare parts outside the contract. The contract required an "appropriate" adjustment to the spare parts price before the March 1987 payment. Yannacopolous maintained that General Dynamics’ failure to reduce the parts price after knowing of Greece's decision was a false statement. In order to prevail, Yannacopolous had to present evidence that General Dynamics knew that the initial estimate was incorrect and that Greece would not order $70 million in spare parts over the life of the contract. Yannacopolous did not produce evidence that General Dynamics could have known that Greece's decision to buy some spare parts elsewhere would lead to a conclusion that it would not purchase $70 million of spare parts from General Dynamics over the following decade. Next, the Court rejected Yannacopolous's interpretation of the contract with respect to the depot program and concluded there were no false invoices. Finally, Lockheed assumed all of General Dynamics' rights and obligations under the program in 1993 and entered into two contract modifications with Greece. Yannacopolous claims both are "reverse" false claims. The Court concluded that Yannacopolous did not present evidence that either modification was objectively false.