United States District Court, N.D. Illinois, Eastern Division
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For Michael McGee, United States of America ex rel., Plaintiff: Daniel Moore Twetten, LEAD ATTORNEY, Loevy & Loevy, Boulder, CO; Bruce C. Howard, Attorney at Law, Wheaton, IL; David M. Stieper, Stieper Law Offices, LTD, Hoffman Estates, IL; John Reid Malkinson, Seth Robert Halpern, Malkinson & Halpern, P.C., Chicago, IL; Michael I Kanovitz, Loevy & Loevy, Chicago, IL; Thomas F Asch, Law Office of Thomas F. Asch, Chicago, IL.
For IBM Corporation, Defendant: Daniel E. Reidy, LEAD ATTORNEY, Jones Day, Chicago, IL; Alex Peter Middleton, Jones Day, Chicago, IL; Chaka M. Patterson, Kenton J. Skarin, Jones Day (CH), Chicago, IL.
For Johnson Controls Incorporated, Defendant: Kristina Joanne Matic, LEAD ATTORNEY, PRO HAC VICE, Foley & Lardner Llp, Milwaukee, WI; Lisa Marie Noller, LEAD ATTORNEY, Foley & Lardner, Chicago, IL; Scott Robert Drury, LEAD ATTORNEY, Reed Smith LLP, Chicago, IL; Robert Alan Roth, Reed Smith LLP, Chicago, IL.
For Raymond M Chin, Defendant: Robert Steven Markin, LEAD ATTORNEY, Chico & Nunes, P.C., Chicago, IL; Mark W. Wallin, Chico & Nunes, P.C., Chicago, IL.
For Michael Shares, Defendant: Joseph P. Shannon, LEAD ATTORNEY, Shannon Law Group PC, Woodridge, IL.
For James Solomon, Defendant: Patrick Michael Griffin, LEAD ATTORNEY, Griffin Williams LLP, Geneva, IL; Joshua Michael Feagans, Griffin Williams LLP, Geneva, IL.
For Peter Lynch, Defendant: Patrick Michael Griffin, LEAD ATTORNEY, Griffin Williams LLP, Geneva, IL.
Byron Artis, Defendant, Pro se, Philadelphia, MS.
For Catherine Maras O'Leary, now known as Catherine Mara, Daniel Coughlin, Defendants: Thomas E. Cargie, Cook County States Attorney's Office Daley Ctr., Chicago, IL.
Memorandum Opinion and Order
Honorable Thomas M. Durkin, United States District Judge.
Plaintiff-Relator Michael McGee (" McGee" ) brings this qui tam action on behalf of the United States and the State of Illinois. R. 1. McGee alleges that IBM, Johnson Controls Incorporated
(" JCI" ), Wireless Information Technologies Enterprise (" WIT" ), Technology Alternatives Incorporated (" TAI" ), TechAlt Incorporated (" TechAlt" ), Public Safety Communications (" PSC" ), MWOBE Controls, Services By Design (" SBD" ), I.T. Suite, Dudley Donelson (" Donelson" ), Raymond Chin (" Chin" ), Michael Shares, James Solomon, Peter Lynch, Byron Artis, Clarence Brownlow, Catherine Maras O'Leary, Daniel Coughlin, Juanita Masanek, Paul Masanek, and Antonio Hylton violated the " Presentation of False Records" (Count I), " False Records and Statements" (Count II), and " Conspiracy" (Count III) provisions of the False Claims Act (" FCA" ), 31 U.S.C. § § 3729(a)(1)(A), 3729(a)(1)(B), and 3729(a)(1)(C), respectively, and the corresponding provisions of the Illinois False Claims Act (" IFCA" ), 740 ILCS 175/1, et seq. (Counts IV, V, and VI). R. 1. Specifically, McGee alleges that the Defendants colluded to defraud Cook County, the State of Illinois, and the Department of Homeland Security (" DHS" ) out of approximately $50 million dollars of grant funds in connection with a program called " Project Shield" (" the Project" ). R. 1. McGee filed his complaint under seal on May 24, 2011. R. 1. On July 22, 2013, the United States and the State of Illinois declined to intervene in the matter, R. 4, after which the complaint was unsealed. Defendants IBM, JCI and Chin have filed separate motions to dismiss on various grounds. R. 58; R. 62; R. 66. IBM moves to dismiss McGee's complaint on the basis that it is improper under the public disclosure bar doctrine, that McGee fails to adequately plead his stated causes of action under Federal Rule of Civil Procedure 9(b), and that the FCA statute of limitations bars all claims predating May 24, 2005. R. 58. JCI likewise moves to dismiss McGee's complaint alleging that McGee failed to adequately plead the asserted causes of action under Rule 9(b) and is improper under the public disclosure bar doctrine. R. 62-1. Finally, Chin moves to dismiss McGee's complaint contending that McGee's complaint fails to adequately allege the stated causes of action under Federal Rules of Civil Procedure 8(a) and 9(b). R. 67. For the following reasons, the Court grants JCI's motion to dismiss, grants Chin's motion to dismiss, and denies IBM's motion to dismiss.
In the aftermath of the terrorist attacks of September 11, 2001, DHS initiated a grant program to provide municipal emergency responder vehicles with interoperable video, voice, and data " mobile platform" systems. R. 1 ¶ 2. The purpose of these mobile platform systems was to enable first responders to instantly relay mission-critical information to a centralized
database in the event of a terrorist attack or natural disaster. R. 1 ¶ 2. TAI designed such a mobile platform system and in early 2003 contacted Donelson--the Deputy Director of Wide Area Networks/IT for Cook County--in an effort to convince him to have Cook County apply for a DHS grant in the hopes that TAI's mobile platform system would be used. R. 1 ¶ 42. Donelson agreed to have Cook County apply for a DHS grant on the condition that TAI include PSC, a company in which Donelson had a financial interest, in any resulting contracts awarded to TAI from the grant. R. 1 ¶ 43. TAI agreed to this condition despite knowing that neither PSC, nor any of its employees, were qualified to do the work that would be required under the contracts, and knowing that TAI and other companies would actually be the ones performing the required work. R. 1 ¶ ¶ 43, 45.
TAI assisted Donelson in completing the grant application that provided for the exclusive utilization of TAI's equipment. R. 1 ¶ 48. In July of 2003, Cook County was awarded the DHS grant. R. 1 ¶ 49. Thereafter, TAI and Donelson arranged a " Homeland Security Summit," whereby potential prime contractors would learn more about the Project. R. 1 ¶ 50. IBM and several other potential prime contractors were invited and attended the summit. R. 1 ¶ 51. Another purpose of the summit was to convey to the potential contractors that including TAI and PSC as subcontractors in their bids would increase their chance of being awarded a contract. R. 1 ¶ 51. However, TAI, PSC, and Donelson were concerned that PSC's lack of technical expertise could result in a prime contractor's proposal being rejected by the County, so TAI and Donelson recruited WIT, a more established tech company, to join their conspiracy and " front" for PSC in the proposal documents. R. 1 ¶ 53. McGee's allegations do not clearly explain what it meant for WIT to " front" for PSC beyond alleging that WIT agreed to list PSC officers as WIT personnel, and that WIT agreed to subcontract its work to PSC in exchange for kickbacks from PSC's Project billings. R. 1 ¶ ¶ 53-54.
To memorialize their relationship, TAI, PSC, and WIT entered into a teaming agreement in December of 2003. R. 1 ¶ 58. By its terms, TAI, PSC, and WIT agreed to seek Project work as a team and not to submit competing bids. R. 1 ¶ ¶ 59-60. The agreement further required the signatories to bid in accordance with the recommendation of the County and to abide by the County's recommendation as to who would act as Project Leader. R. 1 ¶ 63. The agreement contained a nondisclosure clause that required the consent of all signatories prior to the contents of the teaming agreement being disclosed to outside parties. R. 1 ¶ 58. McGee alleges that this agreement was in fact a bid-rigging agreement whereby PSC, TAI, and WIT ensured their participation in the Project through Donelson's influence with the County, and despite PSC's inability to actually perform the work. R. 1 ¶ 61. The agreement was designed to ensure Donelson's own personal enrichment by allowing him to control how the bids would be submitted and who would ultimately be awarded the work. R. 1 ¶ 64.
IBM submitted a bid for Phase I of the Project as a prime contractor. R. 1 ¶ 52. It is unclear whether IBM's proposal simply included TAI and PSC as subcontractors, or whether the proposal listed TAI and WIT as subcontractors, and listed PSC personnel as WIT personnel. Compare R. 1 ¶ ¶ 52, 53, 54, 67. In any case, McGee alleges that IBM agreed to abide by the terms of the teaming agreement. R. 1 ¶ 66. In its proposal, IBM stated that TAI's mobile platform was a " Proven Solution," despite knowing that this was not
the case and that the platforms required significant work prior to becoming operational. R. 1 ¶ 67.
IBM was awarded the prime contract for Phase I of the Project. R. 1 ¶ 68. In signing the contract, IBM warranted that it would supervise all work performed, act consistently with the obligations included in the contract, that the subcontractors used by IBM were competent to perform their respective duties, and that it did not have any conflict of interest that could affect the performance of the work required by the contract. R. 1 ¶ ¶ 71, 74. IBM made these representations even though it had agreed to the terms of the teaming agreement, knew that PSC was not qualified to do the work required by the contract, hid PSC's involvement within its proposal, and knew about the conflict of interest inherent in the teaming agreement and did not disclose it. R. 1 ¶ ¶ 72, 75.
In furtherance of their agreement, in September 2004, IBM entered into a subcontract agreement with TAI whereby TAI agreed to supply, install, and maintain its mobile platform for Phase I of the Project. R. 1 ¶ ¶ 70, 78. Despite knowing that the mobile platforms were not functioning properly, TAI installed 47 platforms into municipal vehicles. R. 1 ¶ 79. In September 2005, IBM conducted a survey of 46 of the installed platforms. Only 17 were functional. R. 1 ¶ 80. Despite its awareness of the functionality problems, and the fact that TAI had installed only 47 of the 80 platforms contracted for, IBM accepted TAI's work and paid them 99% of their total contract price. R. 1 ¶ ¶ 88-89. IBM was paying TAI for work that it had not performed and for non-functional platforms. R. 1 ¶ 90. IBM passed these fraudulent costs along to the County for repayment. R. 1 ¶ 91. IBM's bills were usually submitted to Donelson, who, knowing the bills to be false, would submit them to the County for repayment, representing that the bills conformed to the contract's specifications. R. 1 ¶ 92.
Due to TAI's inability to deliver functioning platforms, McGee's company, Responder Systems, LLC, (" Responder" ) was asked to acquire TAI's Project-related assets and take over TAI's role in the Project. R. 1 ¶ 100. Responder did so in the Fall of 2005. R. 1 ¶ 101. Shortly thereafter, Donelson invited McGee to meet the President of PSC. R. 1 ¶ 102. During this meeting, Donelson asked McGee to join " the team," which McGee alleges meant the bid-rigging team discussed above. R. 1 ¶ 105. If McGee accepted Donelson's invitation, Donelson would use his position with the County to promote McGee's company for other County projects. R. 1 ¶ 105. McGee relayed these events to IBM manager Harold Stiffler (" Stiffler" ). R. 1 ¶ 106. Several months later, Donelson again attempted to convince McGee to join " the team," explaining that McGee's refusal could result in his company not being considered for future work on the Project. R. 1 ¶ 107. McGee declined to join with Donelson and the other conspirators. R. 1 ¶ 108.
Despite these interactions, McGee's company provided its services during the tail-end of Phase I of the Project. Responder was able to fix the existing non-functioning units and install additional functioning units, leaving the County with 78 functioning platforms that met or exceeded the County's requirements. R. 1 ¶ 109. However, paying Responder for this work became difficult for IBM. The
contract contained specific line items, providing a specific amount of funds for a specific type of work. R. 1 ¶ ¶ 117-18. IBM had already paid almost the entirety of the contract funds to TAI for installation of the platforms despite TAI's failure to successfully complete this work. In order to pay Responder Systems for the same work, IBM would have to submit a Project Change Request to the government to increase the installation line item values. R. 1 ¶ 117. IBM was concerned that these change requests would alert the government to the defectiveness of TAI's prior work. R. 1 ¶ 117. To obtain repayment from the government for Responder's installation work, IBM, with the consent of Donelson, submitted bills to the government claiming reimbursement for work included in other line items such as " maintenance." This was done knowing that the funds would actually be used to pay for installation work that was not properly covered by a maintenance line item. R. 1 ¶ 118. Donelson verified the accuracy of these bills to the County in furtherance of the fraud. R. 1 ¶ ¶ 119, 122.
McGee also alleges that IBM paid PSC in advance for work that IBM knew PSC was not qualified to perform. R. 1 ¶ 124. As a result, IBM had to subcontract with another entity to perform the same work that PSC had already been paid to perform. R. 1 ¶ 125. IBM billed the government both for the money paid to PSC and for the money paid to the second subcontractor despite the fact that it was for the exact same work. R. 1 ¶ ¶ 124-25. At some point, IBM manager Stiffler began diverting work away from PSC due to its demonstrated incompetence. IBM removed Stiffler from the Project as a result. R. 1 ¶ 77.
McGee further alleges that PSC billed IBM for the installation of cameras and other equipment outside of the Stroger Battered Women's Shelter. R. 1 ¶ 130. This work was not within the contract's scope of work and IBM denied payment. R. 1 ¶ 130. However, Donelson intervened and ultimately caused IBM to pay PSC $125,000 for this work, which IBM then charged to the government. R. 1 ¶ 130. In addition to billing for defective, duplicative, and uncontracted for services, McGee alleges that IBM fraudulently reported that work was being performed by minority business or women business enterprises, as required by the contract, when the work was being performed by TAI, before being replaced by Responder, or companies that were not truly minority or women owned. R. 1 ¶ ¶ 144-51.
Despite Responder's success in providing functional platforms in Phase I, Donelson announced that for Phase II, the County was seeking a new design for the mobile installations and a new video recording system. R. 1 ¶ 110. PSC submitted a bid touting a new mobile platform design. R. 1 ¶ 111. IBM knew that any proposed design by PSC was likely to be unusable. IBM employee Stiffler admitted to McGee that PSC was not capable of getting their own stationary building cameras to work, let alone developing a new mobile platform. R. 1 ¶ 112. Nevertheless, IBM signed a letter of intent in November 2005, committing to subcontracting the Project's Phase II redesign and installation work to PSC. R. 1 ¶ 115. Knowing it to be false, Donelson represented to the Cook County Board that IBM's proposal, which was based on PSC's new design, met all system requirements, inducing the Board to approve IBM's Phase II contract. R. 1 ¶ 137.
PSC's method for developing the Phase II platform was to attempt to reverse engineer Responder's Phase I platform. R. 1 ¶ 138. PSC was unsuccessful in doing so. R. 1 ¶ 138. Ultimately, the Phase II plat
forms suffered from numerous problems that rendered them non-functional. R. 1 ¶ 140. IBM asked Responder to fix the platforms. R. 1 ¶ 142. Responder declined after surveying the equipment and having determined that no amount of effort would render the Phase II design functional. R. 1 ¶ 142.
The Phase III request for proposal was released in early 2008. R. 1 ¶ 155. Despite the equipment failures in Phase II, Donelson directed that the same hardware configuration be used for Phase III. R. 1 ¶ 156. Donelson did this to ensure that the same personnel who worked on Phase II would work on Phase III. R. 1 ¶ 156. However, the software utilized in Phase II was prohibited in the RFP, which called for the development of new software. R. 1 ¶ 157. IBM did not bid ...