Implied Certification FCA Suit Against Defense Contractors and Retired Army Colonel Dismissed
Yet another federal court has rejected a False Claims Act (FCA) lawsuit brought under an implied certification theory, finding that non-compliance with federal laws and regulations that are not express conditions of payment cannot form the grounds for a FCA suit. On March 31, 2016, the suit brought by two former employees of MD Helicopters, Inc. against their former employer, a retired Army Colonel was dismissed by the U.S. District Court for the Northern District of Alabama. In reaching this ruling, the court found that an implied certification FCA claim could not be premised on the violation of either a provision of the Federal Acquisition Regulation (FAR) titled ‘Contractor Code of Business Ethics and Conduct’ (48 C.F.R. § 52.203-13) or the Truth in Negotiations Act (10 U.S.C. § 2306(a)).
According to the Relators’ suit, originally filed in May 2013, and unsealed in September 2014 after the United States declined to intervene, the CEO of MD Helicopters and a former Army Colonel engaged in an unethical scheme to overcharge the Army for helicopters. In their amended complaint, the Relators alleged that the relationship between MD Helicopters and the former Army Colonel began while the Colonel was still an active duty officer, and involved preferential treatment for MD Helicopters, including advance and confidential information leaks which enabled MD Helicopters to markup its prices and gain a competitive advantage over other contractors. Relators alleged that in return for preferential treatment, the Colonel accepted a job offer from MD Helicopters affiliate Patriarch Partners at double his Army salary. In April 2015, the Colonel pled guilty to charges of making false statements and having a conflict of interest, including his failure to report his acceptance of employment with Patriarch Partners and his failure to report a $30,000 “relocation” check he received from Patriarch Partners prior to his retirement from the Army.
Under the Contractor Code of Business Ethics and Conduct, government contractors are required to disclose “credible evidence” that a principal, employee, agent, or subcontractor of the Contractor has committed a violation of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations, or a violation of the FCA (48 C.F.R. § 52.203-13(b)(3)(i)). Relators alleged that the Defendants were in violation of federal criminal laws prohibiting bribery of public officials and failed to report evidence of the allegedly unethical conduct pursuant to the requirements of FAR. The Relators’ complaint alleged that this reporting failure constituted a violation of the FCA under an implied certification theory. However, in evaluating the Defendants’ motion to dismiss, the court sided with recent rulings from the Middle District of Florida and the Fifth Circuit (United States ex rel. Steury v. Cardinal Health, Inc.), finding that nothing in the pertinent FAR provision expressly conditioned government payment upon compliance. The court further found that there was no provision in the applicable contracts that rendered compliance with the FAR provision a material contractual requirement.
As to Relators’ FCA counts premised upon alleged violations of the Truth in Negotiations Act, the court found that even if Defendants had provided misleading pricing data to the Army, compliance with the Truth in Negotiations Act was neither an express prerequisite to payment, not a material contractual requirement. This ruling presents further authority for FCA defendants seeking to dismiss novel implied certification theories based on laws or regulations not previously found to be express conditions of government payment.