In a case of first impression, a Court of Appeals has held that a government subcontractor’s claim for reimbursement of its actual indirect costs was time-barred. Fluor Fed’l Solns. LLC v. PAE Applied Techs, LLC, No. 17-1468, 2018 WL 1768233 (4th Cir. Apr. 12, 2018) (per curiam) (unpublished). It is the first case to directly address the interplay between the Allowable Cost and Payment Clause of the Federal Acquisition Regulation (“FAR”), 48 C.F.R. § 52.216-7, and a statute of limitations. It highlights the risks government subcontractors face when they choose to wait for a Government audit rather than litigate promptly after a payment dispute arises.
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Fourth Circuit
Fourth Circuit Further Defines Scope of Contractor Risks in the FMS Sales Context
The Court of Appeals for the Fourth Circuit recently published a decision that expanded on its prior Trimble ruling that a foreign government customer cannot sue a U.S. contractor in the Foreign Military Sales (“FMS”) context (at least in U.S. courts). In BAE Sys. Tech. Solution & Servs., Inc. v. Republic of Korea’s Def. Acq. Program Admin., 884 F.3d 463 (4th Cir. 2018), the Korean government claimed that BAE Systems Technology Solutions & Services, Inc. (“BAE”) breached a side agreement that BAE executed with Korea (the “BAE-Korea Agreement”). The BAE-Korea Agreement, which was separate from the FMS agreement between the U.S. and Korea (the “U.S.-Korea Agreement”), required BAE to use its best efforts to negotiate favorable pricing terms in the FMS transaction between the U.S. Government and Korea, and permitted the courts in Korea to hear disputes arising under the agreement.
BAE secured a favorable declaratory judgment from a U.S. district court to the effect that it had complied with the best efforts undertaking, and the Fourth Circuit affirmed on the broader ground that enforcing the BAE-Korea agreement would be contrary to the policy of the Arms Export Control Act (“AECA”) and the principles laid down by the Fourth Circuit in the 2007 Trimble decision, which held that foreign customers in an FMS transaction cannot sue U.S. contractors under a third-party beneficiary theory. However, both courts declined to enjoin Korea’s lawsuit in the Korean courts.
The Fourth Circuit’s decision suggests some guidance for U.S. contractors about entering into similar FMS side agreements in light of both U.S. and foreign litigation risks.
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The FCA’s First-to-File Bar and The Enduring Importance of Textualism
Two years ago, in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, the Supreme Court interpreted the “first-to-file” bar of the False Claims Act (“FCA”) in a manner that seemingly authorizes relators to pursue qui tam suits based upon the same allegations made in previously dismissed FCA actions. On remand from the Supreme Court, the Fourth Circuit recently issued an opinion in Carter in which it took a similarly text-based approach, but reached a different conclusion, holding that the FCA’s first-to-file bar should be interpreted in a manner that promotes finality and prevents copycat lawsuits. These opinions demonstrate the importance of carefully assessing the FCA’s statutory text in litigation.
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Employee Efforts to Stop Employer FCA Violation is Protected Activity Even When No Distinct Possibility of FCA Litigation, says Fourth Circuit
The Fourth Circuit recently held, in an unpublished opinion, that the anti-retaliation or “whistleblower” provisions of the False Claims Act (“FCA”) protect an individual’s efforts to stop a contractor from violating the FCA, even when there is no “distinct possibility” of litigation. This “distinct possibility” standard was adopted prior to 2009 when the whistleblower provision protected employee activity that was in furtherance of an FCA action, “including investigation for, initiation of, testimony for, or assistance” in an FCA action. Under that version of the whistleblower provision, courts had held that a retaliation suit under the FCA would only pass muster if “an employee engages in protected activity when litigation is a distinct possibility, when the conduct reasonably could lead to a viable FCA action, or when . . . litigation is a reasonable possibility.” Amendments to the FCA in 2009 and 2010, however, broadened coverage of the whistleblower provision, creating two prongs of protected activity: (1) “lawful acts done by the employee . . . in furtherance of an action under [the FCA]”; and (2) “other efforts to stop 1 or more violations” of the FCA. 31 U.S.C. § 3730(h). In this case, Carlson v. Dyncorp Int’l LLC, the Fourth Circuit held that the “distinct possibility” standard does not apply to the second prong of the whistleblower provision, as that prong was intended to be broader than the first prong. This case may open the door to broader liability for contractors who take adverse employment actions against employees who attempt to stop or prevent conduct that the employee reasonably believes to be in violation of the FCA. Notably, in Carlson, the Fourth Circuit nevertheless affirmed the district court’s dismissal of plaintiff’s retaliation lawsuit because the plaintiff was alleging that his contractor-employer was under-billing the government and he could not reasonably believe that that practice would lead to a violation of the FCA.
Continue Reading Employee Efforts to Stop Employer FCA Violation is Protected Activity Even When No Distinct Possibility of FCA Litigation, says Fourth Circuit
Off the Mark?: Fourth Circuit Reverses FCA Dismissal Using Implied Certification Theory
In its January 8 decision in United States v. Triple Canopy, Inc., the Fourth Circuit reiterated its acceptance of the implied certification theory of False Claims Act (“FCA”) liability. Under the FCA, a contractor can face steep financial penalties for knowingly making false statements in order to get fraudulent claims paid or approved by the Government. Conventionally, the false statement underlying an FCA violation was clear – for example, an invoice for more hours than were worked or for a service that was never performed. Some federal appellate courts, however, have adopted the theory of implied certification, allowing a court to find an FCA violation based on certifications implicit in a payment request, for example, compliance with a material contract provision.
It was employing this theory that the Fourth Circuit reversed the dismissal of an FCA complaint against Triple Canopy, despite the lack of an objectively false statement in the contractor’s invoices. This decision potentially broadens the already unsure landscape of the theory of implied certification. It may open government contractors up to FCA liability despite accurate claims for payment if the contractor does not disclose its noncompliance with a contractual requirement. This expands traditional implied certification FCA cases because it may open the door to FCA liability if a contractor submits a claim for payment and fails to disclose noncompliance with almost any contract provision, regardless of whether it is explicitly required for payment.Continue Reading Off the Mark?: Fourth Circuit Reverses FCA Dismissal Using Implied Certification Theory
Supreme Court Will Consider Petition on False Claims Act Penalties
When the Supreme Court convenes its “long conference” on Monday to consider pending petitions for certiorari, much of the public focus will be on the various cases about same-sex marriage. Government contractors, however, should pay closer attention to Gosselin World Wide Moving, N.V. v. United States ex rel. Bunk …
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