A whistleblower case that settled last week reinforced an important principle for holding government contractors accountable under the False Claims Act for fraud.
Government contractors that request payment while withholding information about noncompliance with material contractual requirements can be held liable under the False Claims Act even where the request for payment does not contain an express false statement, according to two US Court of Appeals decisions earlier in the case. Those rulings will support other efforts to stop government contractor fraud using the False Claims Act.
Triple Canopy, a private security firm based in Reston, Virginia, agreed to pay the government $2.6 million to resolve allegations that the company violated the False Claims Act when it provided the government with unqualified security guards who were hired to protect military personnel at the second largest U.S. air base in Iraq.
The whistleblower lawsuit, which was joined by the government, alleged the guards did not meet contractually obligated firearms proficiency tests and that Triple Canopy allegedly created false test scorecards to conceal the guards’ inability to shoot safely and accurately.
The settlement was not just a victory for the whistleblower (“relator”) in this case, who received a $500,000 whistleblower reward. This case reaffirmed that failure to disclose noncompliance with important contract requirements can support a False Claims Act case even if the invoices submitted to the government do not contain express falsehoods.
The Fourth Circuit Court of Appeals reversed the district court’s holding that the allegations could not support a False Claims Act case because Triple Canopy had not made an “objectively false” statement by, for example, invoicing the wrong number of guards or billing for the wrong amount. The appeals court ruled in 2015 that the plaintiffs (the government and the whistleblower) had presented allegations that could be pursued under the False Claims Act.
Triple Canopy then petitioned the Supreme Court to hear its case, but the court remanded the case back to the Fourth Circuit to consider the decision following its opinion in Escobar v Universal Health.
In Escobar, the Supreme Court held that a False Claims Act case can be based upon the theory of “implied certification.”
Implied certification is the theory that when a government contractor submits a request for payment, it is implying that it has complied with the important requirements related to the work that it did. If the contractor failed to disclose that it did not in fact comply, then each request for payment can be considered a false claim, even if the request does not contain an express false statement.
The Supreme Court did not decide every circumstance in which the implied certification theory is applicable. It held that the theory applies “at least” where certain conditions were met – where there is a specific representation about the goods or services provided and failure to disclose noncompliance with important requirements makes those representations misleading half-truths.
On remand, the Fourth Circuit concluded that nothing in the Escobar opinion required it to alter its initial decision. Although Triple Canopy argued that Escobar adopted a narrower view of what makes a claim false, the Fourth Circuit disagreed and held that the case fell squarely within the Escobar ruling.
“[A]nyone reviewing Triple Canopy’s invoices ‘would probably—but wrongly—conclude that Triple Canopy had complied with core contract requirements,’” the Fourth Circuit wrote earlier this year.
The Fourth Circuit also found its earlier ruling entirely consistent with the Escobar opinion’s statements on materiality. The Supreme Court had observed that a because a reasonable person would “realize the imperative of a functioning firearm,” a defendant’s failure to appreciate the significance of the need for guns to be capable of shooting would amount to reckless disregard even if the government did not spell out the requirement.
The court found that observation completely consistent with its own observation in Triple Canopy 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.’”
While the Triple Canopy whistleblower’s settlement was an important win for taxpayers and the safety of our military, the Fourth Circuit’s straightforward assessment of the allegations of fraud in light of Escobar could ensure even more fraud is stopped in the years to come.