• The 4th Circuit Expands Liability Under the False Claims Act
  • March 24, 2015 | Authors: Edward T. DeLisle; Amy M. Kirby
  • Law Firm: Cohen Seglias Pallas Greenhall & Furman PC - Philadelphia Office
  • On January 8, 2015 the U.S. Court of Appeals for the Fourth Circuit issued a decision in United States v. Triple Canopy, which broadened the reach of the False Claims Act (FCA) by embracing the theory of implied certification. While it is too early to speculate about the impact of the decision, it certainly could result in a rise in whistle blower and government initiated actions under the FCA.

    The case stems from a security services contract at Al Asad Airbase in Iraq, which was awarded to Triple Canopy in 2009. As a part of the contract, Triple Canopy was required to provide security personnel who possessed specific firearms training and who were able to pass a U.S. Army qualifications course with a minimum score. Scorecards indicating that personnel passed the qualifications course were to be maintained in each employee’s personnel file.

    Triple Canopy hired 332 Ugandan guards to work at the Airbase. The guards’ personnel files indicated that they met the training requirements; however, once they arrived on site and were retested, it was discovered that they were unable to properly perform. To overcome this, Triple Canopy falsified scorecard sheets indicating that its personnel were, in fact, qualified.

    For the 12 month contract period Triple Canopy presented monthly invoices to the government and received payments totaling over 4 million dollars. Sometime later, a former employee filed a qui tam action in the Eastern District of Virginia alleging that the FCA had been violated. The government intervened alleging that Triple Canopy knowingly presented false claims to the government. Specifically, the government alleged “that Triple Canopy knew the guards did not satisfy [the contract’s] marksmanship requirement but nonetheless billed the government the full price for each and every one of its unqualified guards and falsified documents in its files to show that the unqualified guards each qualified as a Marksman on the U.S. Army Qualification course.”

    Triple Canopy filed a motion to dismiss. The basis for this motion was the government’s failure to sufficiently plead that Triple Canopy submitted a demand for payment that contained a false statement. The motion went on to state that the government failed to prove that a false record was created by Triple Canopy, which the government relied upon in paying Triple Canopy. The Court agreed. In its opinion, the Court asserted that the government did not plead “that Triple Canopy submitted a demand for payment that contained an objectively false statement.” In other words, because the actual claim for payment did not contain a false statement, there was no violation of the FCA. Further, the Court held that the “Government ... failed to allege that the [Contracting Officer’s Representative] ever reviewed the scorecards,” demonstrating that the government did not rely upon a false record because it did not examine the scorecards before it made payment. The United States (along with the former employee) appealed to the Fourth Circuit.

    On appeal the Fourth Circuit reversed the District Court’s ruling. The Court held that the “Government pleads a false statement when it alleges that the contractor, with the requisite scienter, made a request for payment under a contract and withheld information about its noncompliance with material contractual requirements. The pertinent inquiry is whether, through the act of submitting a claim, a payee knowingly and falsely implied that it was entitled to payment.” The Fourth Circuit further found that, although Triple Canopy had not submitted certifications that were false on their face, the government plead sufficient evidence to sustain a FCA claim under a theory of implied certification.

    In making this finding, the Court acknowledged the broad purpose of the FCA by stating that “claims can be false when a party impliedly certifies compliance with a material contractual condition [which] gives effect to Congress’ expressly stated purpose that the FCA should reach all fraudulent attempts to cause the Government to pay out sums of money or to deliver property or service.” Here, the material contractual condition was the guards’ qualifications, which Triple Canopy falsified. As the Court explained “common sense strongly suggests that the government’s decision to pay a contractor for providing base security in an active combat zone would be influenced by knowledge that the guards could not, for lack of a better term, shoot straight....[and further] if Triple Canopy believed that the marksmanship requirement was immaterial to the government’s decision to pay, it was unlikely to orchestrate a scheme to falsify records on multiple occasions.” Essentially, the Fourth Circuit found that the claim itself did not have to be false as long as the underlying information that formed the basis of the claim was material and false.

    Prior to this ruling, it was difficult to bring a claim under the FCA under circumstances such as these because it was generally only permissible where there was fraud found in an actual certification for payment. Based upon this decision, a FCA claim can be sustained as long as the material upon which payment is based is false. This is yet another example of the expansive nature of the FCA. If you are a government contractor beware of its implications and if you have any questions, call a legal professional.