MacDowell v. Synnex Corporation

Background

Synnex Corporation sold office products to the federal government. Matthew MacDowell brought a whistleblower action on behalf of the United States under the False Claims Act. The complaint alleged that Synnex offered and sold products under the government’s Multiple Award Schedule 70 contract even though the products contained parts manufactured in countries that did not meet the Trade Agreements Act’s country-of-origin requirements. The alleged products included items containing parts from Huawei Technologies Co., Ltd. and American Power Conversion products.

The action was initially filed under seal in the District of Columbia in August 2012. The United States later declined to intervene, the complaint was unsealed, and MacDowell filed a public third amended complaint in April 2019. Synnex moved to dismiss that complaint. The order also addressed requests by both parties for judicial notice, meaning recognition of documents whose existence or contents could be established from sources not reasonably subject to dispute.

Public-disclosure bar

The False Claims Act’s public-disclosure bar can require dismissal when a claim is based on information publicly disclosed through specified sources, including publicly filed court documents, unless the relator qualifies as an original source. Synnex relied on two earlier public lawsuits alleging that Synnex sold or offered products through government schedules that violated the Trade Agreements Act.

The court found that the first two requirements of the public-disclosure bar were undisputed: the earlier complaints were filed in civil litigation, a qualifying disclosure channel, and the documents were public. It also found that MacDowell’s allegations were substantially similar to the earlier allegations because all three lawsuits accused Synnex of the same type of conduct involving government contracts and products with parts made in non-designated countries.

The court nevertheless found that the original-source exception applied. For alleged conduct before the 2010 statutory amendment, MacDowell offered evidence that he learned about Synnex’s conduct through his work for a Synnex product reseller and through a conversation with a senior Synnex representative. He also reported the alleged fraud to the government through the General Services Administration’s online tip system. For alleged conduct after the amendment, the court found that MacDowell’s information about the American Power Conversion products was independent of and materially added to the earlier public allegations. The court therefore denied Synnex’s motion to dismiss on public-disclosure grounds.

Materiality

A False Claims Act complaint must allege materiality, meaning that the alleged false statement or conduct was important to the government’s payment decision. Synnex argued that Trade Agreements Act compliance was not material. The court noted that the government’s decision not to intervene weighed against materiality but was not conclusive.

The court held that MacDowell adequately pleaded materiality at the early stage of the case. The complaint alleged that compliance with the Trade Agreements Act was a condition of payment, that the contract repeatedly addressed compliance, and that noncompliant products could create security risks for government computer systems. The court therefore denied Synnex’s motion to dismiss on materiality grounds.

Pleading specificity

Because the complaint alleged fraud, Federal Rule of Civil Procedure 9(b) required it to state the circumstances of the alleged fraud with particularity. The court found that the third amended complaint did not meet that requirement. It alleged that Synnex offered Trade Agreements Act-noncompliant products for sale and that the government bought products from Synnex between 2005 and 2016, but it did not adequately connect the products listed for sale with the products identified in government sales invoices.

The court said the complaint did not clearly identify which noncompliant products were sold to the government, when they were sold, who specifically sold them, or how the sales occurred. It therefore granted Synnex’s motion to dismiss on the ground that the complaint lacked the specificity required by Rule 9(b).

Judicial notice and disposition

The court granted Synnex’s unopposed request to take judicial notice of documents from the two earlier lawsuits, a General Services Administration newsletter, an American Power Conversion product guide, and a ruling by U.S. Customs and Border Protection. It also granted MacDowell’s unopposed request to take judicial notice of the existence of specified government documents, contracts, press releases, and exhibits.

In its conclusion, the court stated that, to the extent described in the order, Synnex’s motion to dismiss all of MacDowell’s claims was granted. The court vacated the scheduled hearing and allowed MacDowell to seek leave to amend by October 10, 2019. The order did not state that the dismissal was with or without prejudice. Judge William Alsup signed the order.