Fourth Circuit Potentially Expands Scope of False Claims Act Liability
On January 8, Fourth Circuit Court of Appeals, in United States ex rel. Badr v. Triple Canopy Inc., embraced a theory of implied certification under the False Claims Act (“FCA”), representing a departure from prior Fourth Circuit jurisprudence.
In June 2009, the U.S. government awarded a “firm-fixed price” contract to Triple Canopy to provide security services at the Al Asad Airbase, the second-largest airbase in Iraq. One of Triple Canopy’s responsibilities was to provide personnel with demonstrated marksmanship requirements. To fulfill the contract, Triple Canopy hired 332 Ugandan guards to serve at Al Asad under the supervision of 18 Americans. The guards’ personnel files indicated that they met the qualifying marksmanship scores.
However, Triple Canopy’s supervisors learned upon arriving at the base that the guards lacked the ability to “zero” their rifles and thus were unable to satisfy the qualifying score on their marksmanship course. Nonetheless, Triple Canopy allegedly submitted its monthly invoices to the government for the work of the guards. Triple Canopy also allegedly prepared false scorecards for the guards and post-dated them. Notably, however, the invoices that Triple Canopy submitted to the government for services rendered did not misrepresent the number of personnel or the appropriate rate for their services.
In 2013, a Triple Canopy medic filed a qui tam complaint under the FCA, alleging that he was directed by his supervisor to prepare false marksmanship scorecards for the guards. The government intervened, alleging that Triple Canopy “‘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 a U.S. Army Qualification course.’” More specifically, the government alleged that Triple Canopy (i) knowingly presented false claims in violation of 31 U.S.C. § 3729(a)(1)(A) (Count I) and (ii) caused the creation of false records material to a false claim in violation of 31 U.S.C. § 3729(a)(1)(B) (Count II).
The District Court’s Decision
The district court dismissed both Counts I and II. On Count I, the court ruled that the government failed to plead that Triple Canopy falsely submitted a demand for payment that contained an objectively false statement. On Count II, the court dismissed the government’s claim because it failed to allege a false claim and because the guards’ marksmanship scorecards were immaterial because the government’s contracting officer reviewed certain documentation related to the skills of the contracted personnel prior to paying Triple Canopy’s invoices.
The Fourth Circuit Reverses
While acknowledging that a false claims plaintiff cannot “shoehorn” a breach of contract action into a cognizable FCA claim, the Fourth Circuit nevertheless rejected the district court’s dismissal of Counts I and II. With respect to Count I, the court held that the government adequately pled the submission of a false claim by Triple Canopy because it “allege[d] 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.’” In so holding, the court embraced the theory of implied certification, i.e., that “claims can be false when a party impliedly certifies compliance with a material contractual condition.” Acknowledging that the theory of implied certification “is prone to abuse” by parties seeking to turn minor violations of contractual provisions into FCA actions, the court stated that “[t]he best manner for continuing to ensure that plaintiffs cannot shoehorn a breach of contract claim into a FCA claim is ‘strict enforcement of the Act’s materiality and scienter requirements.’”
The court held that the government had sufficiently pled scienter because not only did Triple Canopy fail to satisfy the marksmanship requirement, but it also had actual knowledge of that failure and “it undertook a fraudulent scheme that included falsifying records to obscure its failure.” With respect to materiality, the court ruled that “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 that guards could not, for lack of a better term, shoot straight.” The court also cited Triple Canopy’s alleged efforts to conceal the failure, noting that Triple Canopy’s alleged conduct supported a finding of materiality. Finally, the court held that the government need only show that a particular item is a material requirement of the contract, a burden that that government had met.
As for Count II, the falsified records claim, the court similarly rejected the district court’s reasoning, holding that (i) the government did not need to allege a false statement by Triple Canopy and (ii) the guards’ marksmanship scorecards are material to the false statement (Triple Canopy’s invoices) because the “false scorecards make the invoices appear legitimate.”
Courts within the Fourth Circuit must now recognize an “implied certification” theory of liability under the FCA. Because this theory is “prone to abuse,” district courts will be charged with assessing whether allegations of implicitly false statements were made with the requisite scienter and are sufficiently material to rise to the level of a viable FCA claim. Such analyses are largely fact specific. Thus, it remains to be seen how liberally courts will interpret the scienter and materiality requirements under an implied certification theory of liability.