False Claims Act ‘Crippling Liability' May Reach SCOTUS

Bloomberg Law’s combination of innovative analytics, research tools and practical guidance provides you with everything you need to be a successful litigator.

By Patrick Gregory

Nov. 19 — Government contractors could see a big impact on False Claims Act liability if the U.S. Supreme Court weighs in on what counts as “false”.

The petitions for certiorari in Triple Canopy and Universal Health ask whether an implied certification of compliance can be actionable under the FCA, 31 U.S.C. §3729.

That question is “important to any person or any company that contracts with the federal government,” John Elwood of Vinson & Elkins, Washington—who has argued nine cases before the high court—told Bloomberg BNA by e-mail Nov. 18.

While many FCA “defendants are traditional government contractors in the defense industry, increasingly, FCA actions are brought against hospitals, health care providers, telecommunications companies, and banks,” Elwood said. Elwood filed an amici curiae brief in the Triple Canopy case in support of the petitioner on behalf of The National Defense Industrial Association, The Professional Services Council and The International Stability Operations Association.

The Supreme Court could grant certiorari in one or both of Triple Canopy and Universal Health Services at its Nov. 24 conference.

Circuit Split

In some circuits, including the U.S. Courts of Appeals for the “Fourth and D.C. Circuits (which encompass D.C. and its suburbs, and thus where virtually every government contractor is subject to suit), a contractor can be subject to crippling False Claims Act liability even when it has not submitted any false statements or false claims to the government,” Elwood said.

A contractor can face liability for implied certification “simply because at the time it submitted claims for payment, it allegedly failed to comply with one of the legions of technical requirements that regulations or contracts impose on government contractors,” Elwood said.

But the Seventh Circuit rejected an implied certification liability theory in United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015) (83 U.S.L.W. 1928, 6/16/15).

The defendants in Triple Canopy and Universal Health asked the high court to resolve this circuit split.

“To be clear, because of this split, whether FCA liability attaches under factually identical circumstances—for instance where a government contractor has knowingly breached a contract term—will turn directly on where the complaint alleging those acts is filed,” defense contractor Triple Canopy Inc. said in its petition for certiorari.

But the federal government's brief in opposition said Triple Canopy “overstates the extent of any disagreement” among the courts of appeals.

‘Punitive' Liability

FCA liability is “an extremely important issue for the thousands of businesses that submit claims for payment to the federal government, particularly in light of the FCA's provisions that allow for treble damages and incentivize relators to bring claims,” Triple Canopy said in its petition.

“The law is very unsettled about when a government contractor can be subject to ‘essentially punitive’ False Claims Act liability” under “an ‘implied false certification’ theory,” Elwood said.

“Courts that recognize implied false certification essentially allow private plaintiffs to transform issues that at most would give rise to a breach of contract claim brought by the United States into punitive False Claims Act liability,” he said.

Further, it forces FCA “defendants to litigate at great cost alleged contractual or regulatory violations that the government itself may have chosen to ignore or waive because it concluded they are inconsequential to contract performance,” he said.

Not-So-Straight Shooters

The federal government alleged that Triple Canopy “knowingly employed guards who were unable to use their weapons properly” for an airbase in Iraq in United States v. Triple Canopy, Inc., 775 F.3d 628 (4th Cir. 2015) (83 U.S.L.W. 1024, 1/13/15).

The contract required guards to meet a marksmanship standard, the Fourth Circuit said.

Claims “can be false when a party impliedly certifies compliance with a material contractual condition” such as a marksmanship requirement, the court held.

A contractor's bill for services can be actionable even if it has no “objectively false statement,” the court said.

The federal government could therefore proceed with its FCA suit against the contractor, the court ruled.

Insurance Claims

Similarly, the First Circuit allowed an FCA suit to proceed against a clinic operator even though the record was silent on whether the operator “explicitly represented” compliance with state regulations, in United States ex rel. Escobar v. Universal Health Servs., Inc., 780 F.3d 504 (1st Cir. 2015) (83 U.S.L.W. 1388, 3/24/15).

Two parents sued the operator, Universal Health Services Inc., after their daughter received unlicensed mental health treatment.

They alleged that when one of the operator's clinics sought reimbursement under Massachusetts's Medicaid program, it made fraudulent misrepresentations that its staff was licensed as required by state law.

The clinic “implicitly communicated” compliance with state regulations “each time it submitted a claim,” the First Circuit said.

To contact the reporter on this story: Patrick L. Gregory in Washington at pgregory@bna.com

To contact the editor responsible for this story: Jeffrey D. Koelemay at jkoelemay@bna.com

Request Litigation on Bloomberg Law