Free Response to Motion - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ULYSSES, INC. Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 06-436C (Judge Williams)

DEFENDANT'S OPPOSITION TO PLAINTIFF'S MOTION FOR PROTECTIVE ORDER TO STAY THE DEPOSITION OF MR. DEMETRIOS TSOUTSAS Defendant, the United States, respectfully submits its opposition to plaintiff Ulysses, Inc.'s ("Ulysses") motion for protective order to stay the Government's deposition of Mr. Demetrios Tsoutsas, President of Ulysses, Inc, filed on January 4, 2008. As explained in more detail below, we oppose Ulysses's motion upon several grounds. First, that Ulysses initiated the above-captioned lawsuit weighs against its request to stay Mr. Tsoutsas's deposition. Second, not only does Ulysses concede that it is unable to locate any Federal Circuit precedent supporting its request, the precedent that it does cite supports the denial of Ulysses's motion. Finally, the "adverse inference" doctrine, with respect to the Fifth Amendment ­ far from supporting Ulysses's position ­ suggests that Ulysses is not entitled to the protective order it seeks. Accordingly, we respectfully request that the Court deny Ulysses's motion for a protective order. I. Factual Background On June 1, 2004, Ulysses filed a complaint in the United States Court of Federal Claims, (No. 04-938C), seeking $44,625 for the alleged wrongful cancellation of a purchase order. Ulysses filed a second complaint (No. 04-939C) for the alleged cancellation of a second purchase order. Those cases were consolidated and subsequently dismissed, without prejudice,

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due to Ulysses's failure to obtain a contracting officer's final decision. In February 2006, Ulysses submitted claims to the contracting officer seeking damages for the alleged wrongful cancellation of both purchase orders. Pl. Compl. ¶ 26. The contracting officer (CO) issued a final decision denying the claims on April 7, 2006. Pl. Compl. ¶ 28. Following the CO's denial of Ulysses's claims, Ulysses continued to pursue those claims, filing, on May 30, 2006, a new complaint in this Court, the above-captioned case. Ulysses again seeks damages allegedly resulting from the cancellation of both purchase orders. Pl. Compl. ¶ 34-36. On May 17, 2007, we filed a motion to amend the answer to assert affirmative defenses and counterclaims based upon the False Claims Act, 31 U.S.C. § 3729 et seq., the special plea in fraud, 28 U.S.C. § 2514, and the fraud provision of the Contract Disputes Act ("CDA"), 41 U.S.C. § 604. On July 16, 2007, Ulysses notified this Court that Ulysses did not oppose our motion to amend the answer and to add counterclaims. See July 19, 2007 Scheduling Order. This Court accordingly granted our motion. Id. Ulysses now contends, however, that it should be granted a protective order, partially staying discovery, notwithstanding that it consented to our motion to add counterclaims months after the criminal investigation allegedly was initiated against Ulysses and Mr. Tsoutsas.1 Indeed, according to Ulysses, the criminal investigation began more than two months before we filed our motion to assert the counterclaims in this case. See Pl. Mot. at 2. Moreover, despite With respect to the precise timing of events and the criminal investigation, undersigned counsels' knowledge is highly limited. We know that: (1) some form of criminal investigation is ongoing; (2) the investigation is being conducted by the Defense Criminal Investigative Service (DCIS) in conjunction with the Assistant United States Attorney (AUSA) identified by Ulysses in its motion; and (3) the investigation involves compliance with government contracts. To the best of our knowledge, however, the criminal investigation does not specifically involve the purchase orders at issue in this case. The aforementioned AUSA is aware of, but has not asked that we move for a stay of, this case. -21

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the fact that Ulysses was aware of the pending criminal investigation, and though the Government first contacted Ulysses's current counsel on July 6, 2007 to schedule depositions, Ulysses delayed filing its motion for a protective order until January 4, 2008. Finally, during that time, Ulysses has continued to serve us with multiple discovery requests, the most recent of which was served as late as December 14, 2007. II. Argument This case is not one in which the Government has pursued both criminal and civil remedies against a common defendant in different fora. To the contrary, Ulysses's motion for a protective order ignores that Ulysses has only itself to blame for facing counterclaims in this Court; Ulysses initiated this litigation against the United States, not vice-versa. Indeed, after Ulysses learned of the DCIS criminal investigation, Ulysses not only pursued its claims in this Court, but also consented to the Government's filing of its counterclaims. We further note that undersigned counsel has not coordinated with any AUSA, the Criminal Division of the Department of Justice, or with DCIS, except: (1) to coordinate on our behalf, and pursuant to a Ulysses discovery request, the parties' review of certain seized documents; and (2) to confirm whether the aforementioned AUSA thought it provident for the Government to seek a stay in this case, which he did not. As explained in more detail below, and in light of the foregoing facts and the relevant case law, we respectfully request that the Court deny Ulysses's motion for a protective order. A. This Court's Cases, Cited In Ulysses's Motion, Favor The Government Here

The legal authorities that Ulysses cites in its motion for a protective order, see Pl. Mot. at 3, either decisively support our position that this Court should deny plaintiff's motion, or are

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readily distinguishable. Moreover, decisions from other courts addressing facts similar to those presented here also demonstrate that Ulysses's motion for a protective order should be denied. Ulysses critically concedes that, in all three of the cases it cites in support of its motion, "the government was the movant." Id. (discussing Ampetrol, Inc. v. United States, 30 Fed. Cl. 320 (1994), and citing two other cases). Instead, Ulysses urges that such "fact along [sic] should not bear on this Court's determination . . . simple [sic] because the movant here is the nongovernment party." Pl. Mot. at 3. Ulysses, however, cites no support for that proposition. Nor could it. In Ampetrol, the Government moved to stay that case precisely because plaintiff's "civil case [would have] interfere[d] with an ongoing criminal investigation." 30 Fed. Cl. at 321. Indeed, this Court explained that "[t]he primary reason that courts attempt to avoid concurrent civil and criminal proceedings is that "`the broader discovery possible in a civil case should not be used to compromise a parallel criminal proceeding.'" Id. at 322 (quoting Litton Systems, Inc. v. United States, 215 Ct. Cl. 1056, 1058 (1978)). Thus, far from being irrelevant, as Ulysses contends, the fact that the Government is not the party seeking a stay of discovery or a protective order here is a crucial factor for this Court to consider. See id. (noting the "public's interest in law enforcement"). Ulysses's position, in that regard, is refuted by a litany of cases from other jurisdictions. For example, in Waldbaum v. Worldvision Enterprises, Inc., 84 F.R.D. 95 (S.D.N.Y. 1979), the district court considered whether a plaintiff that already had been indicted was entitled to a stay of discovery in a civil case.2 The district court, relying upon a decision of the United States Court of Appeals for the Second Circuit, concluded that "[a]s long as the criminal defendant's

2

We note that neither plaintiff nor Mr. Tsoutsas has been indicted. -4-

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preparation for criminal trial was not hampered, "`the fact that additional testimony becomes available to the government is merely the natural byproduct of another judicial proceeding.'" 84 F.R.D. at 96 (quoting United States v. Simon, 373 F.2d 649, 652 (2d Cir.), vacated as moot, 389 U.S. 425 (1967)). Indeed, the Second Circuit explained that, whether a witness is under investigation or indictment, "`[s]uch a witness must either invoke his privilege against selfincrimination, or assume the general duty to give what testimony one is capable of giving.'" 84 F.R.D. at 96 (quoting Simon, 373 F.2d at 653 (internal quotes omitted)). Finally, the district court in Waldbaum observed that the nature of the movant seeking to avoid a deposition (i.e., plaintiff or defendant) is a critical issue that a court must consider: Plaintiffs have cited a number of cases in which courts have chosen to stay discovery; each of the cases is readily distinguishable from the case at hand. . . . The fact that these cases involved defendants, not plaintiffs, in civil proceedings is critical. As defendant Worldvision discusses at length in its brief, the distinction is between the use of the fifth amendment privilege as a sword and as a shield. To allow a plaintiff in a civil action to avoid a deposition on the basis of a criminal indictment against him would have the effect of allowing the plaintiff to use his fifth amendment right to the detriment of the defendant. 84 F.R.D. at 97 (internal citations omitted); see also Medlin v. Andrew, 113 F.R.D. 650, 652-53 (M.D.N.C. 1987) (citing Waldbaum with approval, rejecting "plaintiff's request for a protective order prohibiting her deposition[,]" and noting that "[n]ot only are protective orders prohibiting depositions rarely granted, but plaintiff has a heavy burden of demonstrating good cause for such an order"); United States v. United Broth. of Carpenters and Joiners of America, 782 F. Supp. 920, 925 (S.D.N.Y. 1992) (citing Waldbaum with approval); United States v. International Broth. of Teamsters, 247 F.3d 370, 388 (2d Cir. 2001) (quoting Simon, 373 F.2d at 653, with approval). -5-

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Likewise, the district court in Jones v. B.C. Christopher & Co., 466 F. Supp. 213, 224 (D.C. Kan. 1979) has explained the distinction between when a defendant versus "[w]hen a Plaintiff brings suit and then refuses to submit discovery." In the latter case, "an arguably different situation is presented" in that: [t]he party asserting the privilege is no longer an involuntary litigant. Although he does not waive his recourse to Fifth Amendment protections by filing suit, we question whether he should be privileged to prosecute an action with the hope of recovering damages while maintaining his role in the underlying transactions in a shroud of secrecy. 466 F. Supp. at 224; see also United States v. Ianniello, 1986 WL 7006, *2-3 (S.D.N.Y. 1986) (citing Waldbaum with approval, and commenting that "the Supreme Court in [United States v. Kordel, 397 U.S. 1, 11 (1970)] explicitly . . . rejected the [n]otion that civil proceedings should routinely be deferred pending final resolution of criminal proceedings"). The remaining cases cited by Ulysses are similarly distinguishable, or support the Government here. For example, in St. Paul Fire and Marine Ins. Co. v. United States, 24 Cl. Ct. 513, 516 (1991), the Government sought a stay, and the Court recognized that "the reason why courts attempt to avoid concurrent civil and criminal suits is that `the broader discovery permissible in civil cases should not be used to compromise parallel criminal proceedings.'" Id. (quoting Ulysses's remaining case, Litton Sys., Inc. v. United States, 215 Ct. Cl. 1056, 1058 (1978)). Such a concern is not present where, as here, the civil case will not interfere with, or otherwise compromise, any criminal proceeding. Indeed, as noted above, the AUSA has not requested that we move for a stay of this case, pending the outcome of his criminal investigation. In any event, even under the Ampetrol factors discussed in Ulysses's motion, see Pl. Mot. at 4-6, Ulysses has failed to sustain its burden to justify a protective or stay order in this case. -6-

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For example, beyond its mere say so, Ulysses has failed to provide any evidence ­ let alone to make a "clear showing" ­ that the issues in the civil action are "related" and "substantially similar" to the issues in the criminal investigation.3 Ampetrol, 30 Fed. Cl. at 321. In Ampetrol, the court at least was able to compare plaintiff's complaint with an indictment of its corporate officer. Id. at 321-22. In this case, however, there is no indictment. Moreover, in Ampetrol, "both parties agreed during oral argument that at least some of the evidence could figure importantly in both cases." Id. at 322. Here, there could be no such agreement, as undersigned counsel is aware only that the criminal investigation involves plaintiff's government contracts. Ulysses asserts that the "contracts in the criminal investigation appear to be related to the Department of the Navy," Pl. Mot. at 4, but what is at issue in this case are Defense Supply Center Columbus (DSCC) purchase orders. DSCC is part of the Defense Logistics Agency, not the Navy. See http://www.dscc.dla.mil/about. Ulysses's argument regarding fraudulent activity is equally misplaced. See Pl. Mot. at 4. While evidence of fraud indeed may be "fungible," see id., that is true in any Government civil fraud case.4 That is, civil fraud defendants, in either a Government or qui tam action, must

Ulysses itself concedes that "[u]ntil the criminal investigation status is better defined, Plaintiff has no objection to otherwise proceed[ing] in the civil litigation pending before this Court." Pl. Mot. at 5 (emphasis added). In that regard, we note that, even if the criminal investigation concerns possible fraud, the False Claim Act (FCA) does not require, as plaintiff suggests, the Government to prove an "[i]ntent to defraud," id. at 4, but rather, "[f]or purposes of the FCA, a contractor is deemed to have known that a claim it submitted was false if it had actual knowledge of the falsity of the claim or if it acted in deliberate ignorance or reckless disregard of the truth or falsity of the claim." Commercial Contractors, Inc. v. United States,154 F.3d 1357, 1362 (Fed. Cir. 1998) (citing 31 U.S.C. § 3729(b)). Thus, to prevail upon our FCA counterclaim, we do not need to prove that Ulysses possessed a specific intent to defraud the Government. See 31 U.S.C. § 3729(b) ("no proof of specific intent to defraud is required"). -74

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always take into account whether their answers to questions, either during discovery or at trial, may be incriminating. But the fact that the Government has multiple potential remedies or causes of action at its disposal ­ including administrative remedies (e.g., suspension and debarment) ­ hardly compels the conclusion that plaintiff here is thereby placed "in a position of hardship or inequity." Id. Under Ulysses's logic, every potential target of a civil fraud investigation thereby is unfairly "placed in a position of criminal risk." Id. at 5. But, as explained above, the courts long have rejected such reasoning. Moreover, it bears repeating that the Government in this case did not target Ulysses; rather, the counterclaims at issue here relate narrowly to the claims that Ulysses continued to press against the United States. Finally, "in light of the lack of substantial overlap between the civil and criminal cases, granting a stay only serves to unduly interfere with the court's management of its docket." Lewis v. City of Garland, 2005 WL 2647956, *4 (N.D. Tex. Oct. 14, 2005). In Lewis, the district court denied a request to stay a civil case where "[t]he court ha[d] no way of knowing the duration of the criminal matter." Id. at *3-4 (noting that "[w]here the criminal defendant is the [civil] plaintiff[,]" even an indictment is "largely irrelevant"). Likewise, in this case, Ulysses is the civil plaintiff, it has not been indicted, and Ulysses admittedly "is not certain how long the criminal . . . investigation will continue." Pl. Mot. at 5. Thus, even under the Ampetrol factors, Ulysses's motion should be denied. B. Fifth Amendment Considerations Do Not Support Plaintiff's Motion

As explained above, courts routinely have rejected the notion that discovery in a civil case should be stayed because a witness may be "placed at criminal risk." Pl. Mot. at 5. Thus, the Second Circuit recognized "that when a party must choose between testifying in a civil case

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or maintaining his Fifth Amendment silence: `[T]he same dilemma is faced by any witness in a civil or criminal trial who is himself under investigation or indictment for other crimes. Such a witness must either invoke his privilege against self-incrimination, or assume the general duty to give what testimony one is capable of giving. . . .We cannot agree that civilized standards of procedure and evidence require that a witness under indictment be given the option of nonappearance in any proceedings in related civil or criminal cases until his own trial is concluded.'" International Broth. of Teamsters, 247 F.3d at 388 (quoting Simon, 373 F.2d at 653, and citing cases). Ulysses ignores that it elected to sue the Government here, not viceversa. Ulysses argues ­ but cites no authority for the proposition ­ that permitting Mr.

Tsoutsas to be deposed may place him "at criminal risk in violation of his Fifth Amendment privilege not to incriminate himself." Pl. Mot. at 5. Ulysses is incorrect. See Hearne v. United States, 7 Cl. Ct. 362, 370 (1985) (citing Kordel, 397 U.S. at 11-13, for the proposition that "the Constitution of the United States does not require a stay of civil or administrative proceeding[s] pending the outcome of criminal proceedings"). In fact, Mr. Tsoutsas would be free to invoke the Fifth Amendment in response to particular questions, but merely permitting the Government to depose him would not violate his Fifth Amendment rights.5 In that regard, what Ulysses ultimately appears concerned about is not Mr. Tsoutsas per se, but rather about "any adverse inference against [Ulysses] if Mr. Tsoutsas were to raise his Fifth Amendment right." Pl. Mot. at 5. But that concern is wrong in two respects. First, the fact that the "adverse inference" doctrine exists demonstrates that deponents

See General Dynamics Corp. v. Selb Manuf. Co., 481 F.2d 1204, 1212 (8th Cir. 1973) (citing Hoffman v. United States, 341 U.S. 479, 486 (1951), for the proposition that "[t]he privilege must be asserted with respect to particular questions"). -9-

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cannot deploy Fifth Amendment fears to avoid a deposition. Aptix Corp. v. Quickturn Design Sys., Inc., 269 F.3d 1369, 1374 (Fed. Cir. 2001) ("[A]fter [the witness] invoked his Fifth Amendment privilege and refused to testify [about various topics], the trial court was free to make adverse inferences against him."). Second, "a corporation has no Fifth Amendment privilege against self-incrimination." Browning-Ferris Industries of Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 284 (1989) (citing Wilson v. United States, 221 U.S. 361 (1911)). Thus, Ulysses, the corporate plaintiff in this case, should not be permitted, in effect, to gain Fifth Amendment rights by either avoiding Mr. Tsoutsas's deposition entirely or by avoiding the "adverse inference" doctrine. In sum, Ulysses has failed to carry its burden, and both the relative factual equities and the law squarely support denying its motion. Ulysess alternatively asks the Court to limit the subject matter of the deposition to certain topics. See Pl. Mot. at 6. Plaintiff, however, has no cause to believe that the Government will inquire as to subject matter not at issue in this case, although our view of relevant topics is perhaps more inclusive than plaintiff would prefer (e.g., to include not only the purchase orders and part numbers at issue here, but also Ulysses's familiarity and usage of the DSCC electronic system used to submit quotes for such items). Indeed, those are precisely the types of topics that could just as easily be covered appropriately in a Rule 30(b)(6) deposition.6

See United States v. Payment Processing Center, LLC, 443 F. Supp. 2d 728, 734 (E.D. Pa. 2006) ("The PPC defendants must live with the consequences of their choice. If questioned in the § 1345 action, they may assert their Fifth Amendment right not to incriminate themselves, but if they do, the factfinder . . . is entitled to draw an adverse inference from the assertion. The result is the same even if PPC elects to designate individual defendants as its corporate representatives under Rule 30(b)(6). PPC has no Fifth Amendment rights, . . . but the individual defendants may assert a Fifth Amendment right in their personal capacity. However difficult the dilemma defendants face, it is one Congress envisioned and the Constitution allows." (internal citations omitted)). -10-

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CONCLUSION For the reasons stated above, we respectfully request that this Court deny plaintiff's motion for a protective order staying the deposition of Mr. Tsoutsas.

Respectfully submitted,

JEFFREY S. BUCHOLTZ Acting Assistant Attorney General JEANNE E. DAVIDSON Director s/ Deborah A. Bynum DEBORAH A. BYNUM Assistant Director s/ Matthew H. Solomson MATTHEW H. SOLOMSON Trial Attorney Commercial Litigation Branch Civil Division, U.S. Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tel: (202) 305-3274 January 17, 2008 Counsel for Defendant

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