DC Circuit Ruling Confirms Reasonableness Of Resellers Relying On Trade Agreements Act (TAA) Certifications From Suppliers
The U.S. Court of Appeals for the District of Columbia Circuit has issued a ruling bringing to an end the long-running False Claims Act (“FCA”) case filed by relator Brady Folliard and providing useful guidance to resellers servicing the Federal government through the GSA Multiple Award Schedule program. In affirming the district court’s decision to grant Govplace’s motion for summary judgment and dismiss the case, the Court of Appeals found that Govplace did not knowingly violate the FCA because it reasonably relied on Trade Agreements Act (“TAA”) certifications from its distributor. The holding of the Court of Appeals that “a contractor like Govplace is ordinarily entitled to rely on a supplier’s certification that the product meets TAA requirements” has broader implications than just the claims asserted against Govplace: it ratifies the long-standing industry practice of small business resellers leveraging the resources of their suppliers to comply with the requirements of their GSA Schedule Contracts.
If you have not been following the developments of this case, Mr. Folliard initially filed his complaint against Govplace and twelve other government contractors in 2007 alleging that they violated the FCA by selling—and offering to sell—products to the government through the GSA Multiple Award Schedule program that did not comply with the TAA. The claims against all but two of the defendants were dismissed on “first to file” grounds at the outset of the case because Mr. Folliard’s claims were “based on the same material elements” of a previously-filed complaint by another relator. The remaining two defendants, including Govplace, filed motions for summary judgment at the very outset of discovery. Ultimately, after extensive briefing and targeted discovery regarding Mr. Folliard’s allegations against Govplace, the U.S. District Court for the District of Columbia dismissed the case with prejudice because there was no evidence that Govplace ever knowingly violated the FCA.
Govplace, a small business provider of IT integration and product solutions, delivers enterprise IT solutions exclusively to the public sector. Since 1999, Govplace has been a recipient of a GSA Schedule contract, which is a vehicle used by commercial firms to provide supplies and services to government agencies throughout the world. Govplace acquires the vast majority of the products it sells on its GSA Schedule Contract from Ingram Micro—the world’s largest technology distributor—through its participation in the Ingram Micro GSA Pass Through Program. The GSA Pass Through Program is designed for small businesses like Govplace, and allows Govplace to leverage Ingram Micro’s resources and capabilities to help administer and ensure compliance with the terms of its GSA Schedule Contract. Among other things, Ingram Micro certified that the products it offered for sale to Govplace “are compliant with the Trade Agreements Act,” and Govplace relied on those certifications in selling products through its GSA Schedule Contract.
Govplace also was subject to Contractor Administrative Visits by GSA to evaluate its compliance with GSA Schedule requirements. During those visits, Govplace explained to GSA that it relied on Ingram Micro country of origin information for the products it listed for sale on its GSA Schedule. As a result of those visits, Administrative Report Cards were issued that stated Govplace had demonstrated compliance with the TAA, thereby implicitly approving Govplace’s reliance on the Ingram Micro country of origin certifications.
Mr. Folliard contended that it was not reasonable for Govplace to rely on the Ingram Micro TAA certifications because (1) Govplace received an unsolicited email from a manufacturer that included a product list allegedly showing that some products sold by Govplace were manufactured in China and (2) an Ingram Micro competitor sent Govplace unsolicited price lists that, according to Mr. Folliard, contradicted the country of origin information it received from Ingram Micro. Both arguments were rejected by the Court of Appeals.
The Court of Appeals found that the unsolicited manufacturer email was not received until after the sales in question and thus could not be evidence that Govplace knowingly violated the FCA. In addition, the email did not undermine Govplace’s reliance on the Ingram Micro TAA certifications because the product list attached to the email showed that products were manufactured in multiple locations, including TAA-compliant countries.
The Court of Appeals also found Mr. Folliard’s reliance on the unsolicited price lists from an Ingram Micro competitor to be “equally flawed.” There was no evidence Govplace ever reviewed those price lists. And, even if it had, the price lists included express disclaimers regarding country of origin of the listed products. There was no basis for Govplace to question any of the TAA information it received from Ingram Micro. Thus, the Court of Appeals “conclude[d] that Govplace reasonably relied on Ingram Micro’s [country of origin] certification.”
The ruling by the Court of Appeals is useful guidance for small business government contractors who often lack sufficient resources to independently confirm the accuracy of country of origin information they receive from distributors for each individual product they sell through their GSA Schedule Contract. Assuming there are no “red flags” calling into question the accuracy of a distributor’s country of origin certifications, relying on a distributor’s certification to ensure TAA compliance does not give rise to a claim of a knowing violation of the FCA. Notably, although it is not specifically noted in the Court of Appeals’ decision, Govplace conducted extensive due diligence before it made the decision to participate in the Ingram Micro GSA Pass Through Program. Among other things, Govplace inquired into Ingram Micro’s procedures for certifying the country of origin of products they offered for sale. Contractors would be wise to similarly take steps to assure themselves that their suppliers are offering products for sale that comply with the GSA Schedule requirements, including the TAA.
 In the interest of full disclosure, Sheppard Mullin attorneys Christopher M. Loveland and Jonathan S. Aronie represented Govplace in this case.