Fourth Circuit Clarifies Federal False Claims Standards in January 2015 Majority Decision

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Authored by attorney Neil Lowenstein

Last month the United States Court of Appeals for the Fourth Circuit (which has Federal Court appellate jurisdiction for Virginia, North Carolina, South Carolina, West Virginia, Maryland and the District of Columbia) clarified a number of aspects of Federal False Claim actions. The case is United States, et al. v. Triple Canopy, Inc., Nos. 13-2190 and 13-2191, decided January 8, 2015, and involves a whistleblower (“qui tam”)claim by an ex-employee of a security contractor, Triple Canopy, respecting Triple Canopy security service contracts with the Federal Government.

The whistleblower, a medic named Omar Badr, claimed that Triple Canopy had knowingly provided non-qualified guards, asked him to falsify related records, and then when he refused falsified them and invoiced for the non-conforming services. The Attorney General elected to intervene and proceed with the action after it was filed by Badr, and then filed an amended complaint alleging additional violations, and bringing several common law claims against Triple Canopy. The district court dismissed the False Claims Act claims and common law claims, as well as the whistleblower’s claims, and the appeal resulted.

Reviewing the district court’s decisions “de novo” (anew; the applicable review standard), the Fourth Circuit reversed several aspects of the district court’s decision, and in the process clarified the pleading (and proof) standards applicable to False Claims Act (“FCA”) actions. Particularly of note as being clarified by the court are the following:

  • Implied Certifications: The Fourth Circuit clarified that false claims include falsehoods by silence, and that such “implied” certifications (as opposed to affirmative representations) arise when the contractor’s silence infers the contractor has met contractual prerequisites for the Government action being induced (in that case, the prerequisites for payment). The court clarified that the silence must go to a “material” (as opposed to minor) contractual requirement though; in that case the non-qualification of the guards being held as material by the court.
  • Whistleblower as Plaintiff: The Fourth Circuit clarified that the whistleblower remains a proper party plaintiff claimant even after the Attorney General elects to intervene and proceed with the action. The district court had held that the whistleblower’s claims were superseded by the Government’s claims; but the Fourth Circuit reversed holding the whistleblower had the right to continue as a party in the action subject to the limitations in FCA Code Sec. 3730(c)(2); which the court noted the district court was free to consider on remand.
  • False Records Claim Basis: The Fourth Circuit clarified that the Government was not required to have actually reviewed or relied upon the false record to support a false records claim. The district court had focused on the actual effect of the false statement rather than its potential effect, but the Fourth Circuit held that – in appropriate circumstances – a record is false if it has the potential to influence Government payment; even if the Government ultimately did not review the record. Additionally, the court expressly declined to adopt the view that such implied representations can only give rise to FCA claims when the condition is expressly designated as a condition for payment; but that not every part of the contract can be assumed as a condition of payment – leaving the question of materiality for case by case analysis.

As part of its analysis, the court noted the importance of construing the FCA as a “strong remedy” when one was needed to confront fraud upon the government. While noting that its decisions in Triple Canopy might be “prone to abuse” by efforts to turn minor contractual violations into FCA claims, the court noted the FCA purposes overrode that concern and further noted the available remedies for any such “abusive litigation.”

How the Fourth Circuit’s decision in Triple Canopy expands FCA claims, and whistleblower actions in particular, remains to be seen; but it clearly seems to widen the door of FCA action-ability, and should serve as a caution to any Federal contractor respecting both what is said, and not said, to the Government throughout contractual performance.

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