fraud

On January 25, 2022, the Fourth Circuit joined the growing number of circuits to hold that under the False Claims Act, “a defendant cannot act ‘knowingly’ if it bases its actions on an objectively reasonable interpretation of the relevant statute when it has not be warned away from the interpretation by authoritative guidance” and that “this objective standard precludes inquiry into a defendant’s subjective intent.”  United States ex rel. Sheldon v. Allergan, No. 20-2330, (4th Cir. Jan. 25, 2022) (“Opinion”) at 12.
Continue Reading Fourth Circuit Sheldon Decision Confirms Objective Standard For Scienter Under FCA

Last year, we wrote about a trial court’s decision to dismiss a False Claims Act (“FCA”) complaint regarding alleged Trade Agreements Act (“TAA”) non-compliances because the relator failed to plead fraud with “particularity” under Rule 9(b).  That decision offered a sweeping rebuke of speculative FCA claims, and emphasized why it can be difficult to present a valid FCA claim based on a potential violation of a complex regulatory scheme like the TAA.

Last month, the United States Court of Appeals for the Seventh Circuit unanimously affirmed that decision in United States ex rel. Berkowitz v. Automation Aids, Inc., — F.3d — , 2018 WL 3567836 (7th Cir. July 25, 2018).  In doing so, the Seventh Circuit provided additional guidance about various topics, including the Rule 9(b) standard for implied certifications and the power of the materiality defense.  Our takeaways are below.
Continue Reading Alleged Sales of Non-TAA-Compliant Products Under GSA Schedule Contracts Are Not False Claims, 7th Circuit Holds

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.
Continue Reading The FCA’s First-to-File Bar and The Enduring Importance of Textualism

Two years ago, when the Supreme Court addressed the “first-to-file” bar of the False Claims Act (FCA) in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, it predicted that its holding might “produce practical problems,” as “[t]he False Claims Act’s qui tam provisions present many interpretive challenges, and it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine.”  Immediately validating this prediction, upon remand of the Carter case, a new interpretative challenge emerged in the same case regarding the first-to-file bar.  That challenge was presented to the Fourth Circuit in oral argument last week.
Continue Reading First-To-File Rule of the False Claims Act Continues to Present Interpretive Challenges

Federal contractors who require employees to sign confidentiality agreements—including those selling only commercial products or in small quantities—need to examine their agreements closely. For the last two years, the government has sought to prohibit confidentiality agreements that restrict employees’ ability to report fraud, waste, or abuse to “designated investigative or law enforcement representative[s]” for federal agencies authorized to receive that information.”[1]  Most recently, the Department of Defense issued a new class deviation on November 14, 2016 prohibiting DoD from using funds from recent appropriations to contract with companies using overbroad confidentiality agreements.[2]  While these restrictions may not be new, the deviation’s broad application and significant consequences mean that contractors should give close scrutiny to ensure any agreements with employees comply with the prohibition.
Continue Reading Confidentiality Agreements Continue To Pose Potential Compliance Trap for Contractors

Last week, the United States Supreme Court heard argument in State Farm Fire & Casualty Co. v. United States ex rel. Rigsby over the False Claims Act’s (FCA) “seal requirement.”  The controversy highlights an important statutory tool for government contractors who face allegations of making false claims for payment.  It also provides important lessons for those seeking to bring such allegations.
Continue Reading Supreme Court Hears Argument Over False Claims Act’s Seal Requirement

United States ex rel. Hartpence v. Kinetic Concepts, Inc., No. 12-55396 (9th Cir. July 2015) is one of many recent decisions limiting a contractor’s ability to dismiss False Claims Act (“FCA”) lawsuits at an early stage of the litigation.  In Hartpence, the Ninth Circuit resurrected two FCA cases in one sweeping decision by interpreting the public disclosure and first-to-file bars in a relator-friendly manner that further erodes the protections contractors have against potentially parasitic FCA lawsuits filed after the government is aware of the alleged fraud.
Continue Reading Ninth Circuit Narrows Application of the False Claims Act’s Public Disclosure and First to File Bars

On Wednesday, April 29, the Eighth Circuit issued an opinion holding that evidence of a for-profit college’s falsification of grades and attendance records may support a claim that it “fraudulently induced the Department of Education [“DOE”] to provide [it] funds,” and was thus liable under the False Claims Act (“FCA”).  Specifically, the claim alleged that, in an effort to obtain funds from DOE, the college agreed to accurately maintain certain records, but had no intention of actually doing so.  Finding that the evidence was sufficient to be submitted to a jury on this issue, the court reversed in part the district court’s summary judgment ruling in favor of the defendant, and remanded the case.

In 2009, the college signed a Program Participation Agreement (“PPA”) with DOE under which it could receive funding in the form of federal grants, loans, or scholarships under Title IV of the Higher Education Act of 1965 (“Title IV funding”).  To be eligible for funds, however, a student had to make “satisfactory progress” — a standard measured by cumulative grade point average.  If a student withdrew, the college may have had to submit a refund to DOE “depending on how much of a program the student completed.”  From 2009 to 2012, DOE disbursed over $32 million to the college.
Continue Reading College’s Falsification of Grades and Attendance Records May Trigger FCA Liability

Background: In Appeal of Laguna Construction Company, Inc., the Armed Services Board of Contracts Appeals (“ASBCA”) found that a contractor’s receipt of kickbacks from subcontractors was both criminal fraud and a material breach of the contract, which eliminated the Government’s obligation to reimburse the contractor for additional work, even if that work was not itself related to the fraud.  The ASBCA denied Laguna Construction Company, Inc.’s (“LCC”) certified claim for $2,874,081 in payments disallowed by the Defense Contract Audit Agency (“DCAA”).  LCC had received sixteen cost-reimbursable task orders to perform work in Iraq under an Air Force Worldwide Environmental Remediation and Construction contract.  Following the filing of its claim, LCC’s Program Manager and Vice President of Operations pled guilty to taking kickbacks with regard to three of the sixteen task orders. 

In making its determination, the ASBCA relied on the principle of antecedent breach — the theory that when each party claims that the other has breached the contract, liability will be imposed “on the party that committed the first material breach.”  Applying this theory, the ASBCA found that LCC’s program manager and vice president of operations’ acceptance of kickbacks constituted the first material breach under the contract, thus providing the Government with a legal excuse not to pay LCC’s invoices.  Continue Reading ASBCA Finds Kickbacks Under Three of Sixteen Task Orders is Sufficient to Taint Contractor’s Entire Claim

The Eighth Circuit recently joined the ranks of four other federal circuits allowing whistleblowers to plead False Claims Act (FCA) violations without identifying specific examples of false claims submitted for reimbursement.  In so doing, the Eighth Circuit concluded that the heightened federal pleading standards required for fraud claims are satisfied where a whistleblower can provide