United States ex rel. Hayes v. CMC Electronics, Inc.

The United States Army Communications-Electronics Command (government) (plaintiff) entered into a procurement contract with AEC Electronics (AEC) to purchase 97 new radio-sets. The government subsequently entered into a Letters of Offer and Acceptance (LOA) agreement with Saudi Arabia under the Arms Export Control Act (AECA), which is a part of the Foreign Military Sales (FMS) program, to resell the 97 radio-sets to Saudi Arabia. AEC entered into a subcontract with CMC Electronics (CMC) (defendant) to obtain 97 brand-new radio-sets. In contravention of subcontract requirements, CMC provided AEC with 97 used radio-sets but presented them as new radio-sets. Because CMC provided used radio-sets at new radio-set prices, CMC significantly overcharged AEC, which resulted in an overcharge to the government. Because the government resold the radios to Saudi Arabia through the FMS program, the overcharge was passed on to Saudi Arabia. Russell Hayes (plaintiff), a former project manager for CMC, brought a qui tam action under the False Claims Act against CMC on the government’s behalf; the government intervened. CMC filed a partial motion to dismiss, arguing that the False Claims Act was inapplicable because, under the government’s LOA with Saudi Arabia, the government paid CMC’s inflated charges using Saudi Arabia’s funds and, therefore, the government did not sustain any damages.