United States District Court, C.D. Illinois, Rock Island Division
SARA DARROW, District Judge.
Plaintiff United States of America claims that contractor Kellogg Brown & Root Services, Inc. ("KBR"),  its subsidiary, Overseas Administrative Services, Ltd. ("OAS"), and its subcontractor, First Kuwaiti Trading Company (in its various incarnations, collectively "First Kuwaiti"), inflated the costs of providing living quarters for American troops in Iraq. Before the Court are Defendant First Kuwaiti's Motion to Dismiss, ECF No. 50, and Defendant OAS's Motion to Dismiss, ECF No. 60. Defendants request hearings on their motions; because the pleadings sufficiently present the issues, however, the requests for hearings, are DENIED. First Kuwaiti Motion for Hearing, ECF No. 53; OAS Motion to Dismiss 1, ECF No. 60. First Kuwaiti's Motion for Leave to File a Supplemental Memorandum in Support of its Motion to Dismiss, ECF No. 56, is GRANTED. KBR's Motion for Leave to Respond to United States' Opposition to First Kuwaiti's Motion to Dismiss Complaint, ECF No. 57, is DENIED. For the following reasons, Defendant First Kuwaiti's Motion to Dismiss is GRANTED, and Defendant OAS's Motion to Dismiss is DENIED.
On December 14, 2001, the U.S. Army awarded the Logistics Civil Augmentation Program III ("LOGCAP III") contract to KBR for the provision of support services in the Iraqi military theater. KBR is a Delaware corporation with its principal place of business in Texas. OAS, a wholly owned subsidiary of KBR incorporated in the Cayman Islands and headquartered in Dubai, employed most of KBR's administrators working on LOGCAP III in Iraq and Kuwait. LOGCAP III is an umbrella contract for indefinite delivery of an indefinite number of services. Much of KBR's work under LOGCAP III was performed through subcontractors; KBR paid them for the actual cost of their services and sought reimbursement from the Government for this amount, plus a 1% base fee and a discretionary award of up to 2%.
Under LOGCAP III, KBR was to "provide, setup, operate and maintain" 2, 252 living trailers at Camp Anaconda in Iraq no later than December 15, 2003. On October 16, 2003, KBR awarded Subcontract 11 to First Kuwaiti-a Kuwait-based contractor-to provide, deliver, and install 2, 252 living trailers at Camp Anaconda by December 15, 2003. Subcontract 11 provided that payment by the United States to KBR was a condition precedent to KBR's payment to First Kuwaiti. Pl.'s Mot. for Lv. File Reply, Ex. 1 at 38, ECF No. 30-1. First Kuwaiti later presented several requests to KBR for equitable adjustment ("REA") of the subcontract price based on delays that occurred in performing Subcontract 11.
I. Requests for Equitable Adjustment
In May and June 2004, First Kuwaiti submitted four REAs for "repair costs and double-handling" due to alleged Government-caused delays; these four REAs were later consolidated into a single "double handling" REA totaling $30, 638, 102. First Kuwaiti claimed that it had to hold the trailers at temporary storage locations due to convoy and site-preparation delays. To accomplish this, First Kuwaiti leased land, cranes, and other equipment and hired personnel it otherwise would not have needed; the increased handling also resulted in damage to the trailers, which First Kuwaiti had to repair. KBR and First Kuwaiti eventually settled the double handling REA for $23, 831, 147.25, which the Government claims included "millions of dollars more" for cranes and repairs than was supported by First Kuwaiti's actual crane costs and KBR's independent evaluation, respectively. KBR billed the Government for this REA.
On July 15, 2004, First Kuwaiti submitted a "delay" REA for the costs of 83, 942 days of idle truck and driver time due to the delay, all of which it attributed to the Government. On August 4, 2004, First Kuwaiti submitted a revised delay REA and claimed its "actual costs" for the idle trucks and drivers, as supported by lease invoices and verified by KBR, was $500 per day. Despite information in First Kuwaiti's truck leases and invoices and convoy logs that suggested lower actual costs, and evidence that the companies were seeking reimbursement for more delay days than were attributable to Government fault, KBR and First Kuwaiti agreed to settle the delay REA for $24, 923, 400 based on 83, 078 delay days at $200 a day for trucks and $100 a day for drivers. KBR sought reimbursement from the Government based on this amount.
On August 31, 2004, KBR billed the Government $48, 754, 547.25 for its costs attributable to the double-handling and delay REAs, plus related fees and costs, which the Government paid in September 2004. By March 17, 2006, the Defense Contract Audit Agency had suspended and disapproved this payment as unsupported. However-after KBR represented that First Kuwaiti's truck costs were "reasonable, " while failing to disclose the actual leases-an Administrative Contracting Officer ("ACO") at the Defense Contract Management Agency ("DCMA") issued an Interim Determination provisionally reinstating $25, 564, 516 of the payment on December 29, 2006. On June 20, 2008, another ACO reversed the Interim Determination after concluding that the supporting information provided by First Kuwaiti lacked credibility because a kickback scheme between KBR and First Kuwaiti employees had come to light.
On July 18, 2008, KBR sent a letter to the ACO claiming that KBR "independently verified" the claims and "adequate price analysis was provided" to determine the reasonableness of the delay costs. On November 4, 2010, KBR submitted a certified claim to an ACO pursuant to the Contract Disputes Act ("CDA"), 41 U.S.C. §§ 7101-09, for the costs of the double handling and delay REAs, attesting that the claim was "made in good faith, " the "supporting data were accurate and complete to the best of [his] knowledge and belief, " and the "amount requested accurately reflect[ed] the contract adjustment for which [KBR] believe[d] the Government is liable...." The final ACO decision on July 29, 2011, ordered KBR to refund the Government $21, 781, 512, thereby providing KBR only $3, 783, 005 in total reimbursement on the REAs.
I. First Kuwaiti's Contact With United States
According to Wadih Al Absi, a Kuwaiti resident and general manager of First Kuwaiti, First Kuwaiti is a construction and general contracting firm that was incorporated in Kuwait in 1996. Al Absi Aff. ¶¶ 2-5, ECF No. 50-1. First Kuwaiti conducts most of its work in the Middle East, but it has also performed projects in Indonesia and Gabon. Id. ¶ 6. Although it performed one project under direct contract with the United States-building the U.S. embassy in Baghdad in 2005 to 2008-and was subcontractor on three other U.S. consulate construction projects, First Kuwaiti has never performed work within the United States. Id. ¶¶ 7, 10-11. According to Al Absi, First Kuwaiti owns no property and has no offices, no employees or agents, and no telephone listing or mailing address within the territorial United States; it is not licensed to do business in any United States jurisdiction. Id. ¶¶ 8, 12-15. First Kuwaiti does not pay taxes to the United States, and has no designated agent for service of process within the United States. Id. ¶¶ 16-17.
Al Absi additionally claims that negotiations on Subcontract 11, to which the United States was not a party, occurred entirely within Iraq or Kuwait; KBR's representatives in those negotiations-Jacob Matovinovic, Craig McGinnis, and Donald Bailey-and its primary point of contact during performance of Subcontract 11 were based in Iraq; Subcontract 11 was performed outside the territorial United States; and at no point did any First Kuwaiti employee travel there on business related to Subcontract 11. Id. ¶¶ 18-23. First Kuwaiti received payments on Subcontract 11 at the National Bank of Kuwait in Kuwait City, and Al Absi said his "understanding" is that KBR made those payments from its own account at the National Bank of Kuwait. Id. ¶ 24.
Jerry Conry, an ACO who administered LOGCAP III, states in an affidavit that in order to obtain additional information regarding First Kuwaiti's use of trucks as claimed in an REA, he participated in a telephone conference organized by KBR on December 14, 2006. Conry Aff. ¶¶ 4-5, ECF No. 54-1. Conry "understood that [KBR's representatives] were gathered in a conference room at KBR, and had Samir Ida, a First Kuwaiti employee, present with them in the conference room." Id. ¶ 5. Conry notes that KBR representatives relayed his questions to Ida, who answered some of his questions and promised to answer others at a later date. Id. ¶ 5. In his own declaration, however, Ida says he "does not recall ever visiting" a KBR office in the United States or traveling to the United States for the December 14, 2006 phone conference, which he claims he participated in remotely. Ida Aff. ¶¶ 3-5, ECF No. 56-2. Ida claims First Kuwaiti business records "confirm [his] recollection" about the December 14, 2006 teleconference. Id. ¶ 6. In a December 14, 2006 email from Ida to KBR's Kurt Miller, Ida indicates that he will be accessing the conference call from Kuwait. First Kuwaiti Mot. for Lv. File Supp. Mem., Ex. 3, ECF No. 56-3.
In his deposition, KBR's Needham states that he "think[s]" he met with Samir inside the United States once, "possibly in the '06-'07 timeframe, maybe-I am not really sure, " at a KBR office in either Houston or Virginia. Needham Dep. 300:12-301:3, ECF No. 54-2. In a December 21, 2006 email from Ida to Needham, Ida provides First Kuwaiti records pertaining to truck lease agreements in response to "(DCMA) questions and our discussions with the contracting officer." Pl.'s Resp. to Mot. Dismiss, Ex. 2B at 1, ECF No. 54-2. The declaration of Government attorney John Kolar-who deposed Needham-indicates that Ida was referring to ACO Conry's request for additional information at the December 14, 2006 phone conference. Kolar Aff. ¶ 3, ECF No. 54-2; see Pl.'s Resp. to First Kuwaiti Mot. Dismiss 12.
II. Procedural History
KBR appealed the final ACO decision to the Army Services Board of Contract Appeals ("ASBCA") in August 2011, but that action was dismissed without prejudice when the Government filed the instant fraud-based suit on November 20, 2012. Def.'s Mem. in Supp. Mot. Dismiss 6, ECF No. 25. The Government alleges that the REAs and supporting statements submitted by KBR, OAS, and First Kuwaiti constituted (1) false or fraudulent claims for payment by the United States, or false statements in support of such claims, under 31 U.S.C. § 3729(a)(1)-(2) (2000) and 31 U.S.C. § 3729(a)(1) (2006 & Supp. III 2009); (2) false records or statements made to conceal, avoid, or decrease an obligation to pay the United States under 31 U.S.C. § 3729(a)(7) (2000); and (3) a conspiracy to defraud the United States by submitting false or fraudulent claims for payment, in violation of 31 U.S.C. § 3729(a)(3) (2000) and 31 U.S.C. § 3729(a)(1)(C) (2006 & Supp. III 2009). The Government additionally alleges that KBR and OAS violated the CDA, 41 U.S.C. § 7103(c), by submitting a fraudulent certified claim to an ACO, and committed breach of contract.
On March 4, 2013, KBR moved for change of venue to the Eastern District of Virginia, which the Court denied. After unsuccessful attempts via conventional means of service, on September 11, 2013, the Court authorized the Government to serve First Kuwaiti through two attorneys at a Washington, D.C. firm who have represented one First Kuwaiti entity, First Kuwaiti Trading & Contracting, WLL, but were not authorized by First Kuwaiti to waive service on its behalf. Sept. 11, 2013 Order 3, ECF No. 40. Despite the limited nature of their representation and lack of express authorization, based on evidence that these lawyers were in communication with the First Kuwaiti entity, the Court found that they would have the ability and incentive to notify the common First Kuwaiti manager of the Government's suit. Id. at 6-7. KBR, First Kuwaiti, and OAS filed separate motions to dismiss the claims against each on May 6, 2013, December 23, 2013, and February 12, 2014, respectively. On March 31, 2014, the Court denied KBR's motion to dismiss. Now before the Court are the motions to dismiss filed by First Kuwaiti and OAS.
I. First Kuwaiti's Motion ...