The Federal False Claims Act...Liability Even When There Is No Government Reliance

David L. Hayden, Jackson W. Moore, Andrew P. Atkins

In its recent opinion, United States v. Triple Canopy, Inc., Nos. 13-2190, 13-2191 (4^th Cir., January 8, 2015), the Fourth Circuit emphasized that the Federal False Claims Act (FCA) is a “strong remedy,” designed to target all fraud and the falsification of records submitted to the Government in connection with a payment request, even if the federal Government does not rely upon or even review the records submitted. 

Contractor Alleged To Have Fabricated False Scorecards

In Triple Canopy, the defendant, a security contractor, had been awarded a firm-fixed price contract as a prime contractor to provide security services at the Al Asad Airbase in Iraq. The defendant’s specific contractual duties required it to “ensure that all employees have received initial training on the weapon that they carry, [and] that they have qualified on a U.S. Army qualification course.” To satisfy the marksmanship requirement, employees had to meet a minimum score in a firing exercise. Qualifying scorecards for guards were to be maintained in their personnel files.

The defendant hired approximately 332 Ugandan guards to serve under the supervision of 18 Americans. The personnel files indicated that the guards satisfied the marksmanship requirement at a course in Uganda. However, upon arriving at the base, the supervisors learned that the guards were unable to satisfy the qualifying score. Nonetheless, the defendant continued to submit monthly invoices for the guards. 

After a failed training attempt, the defendant’s supervisor directed that false scorecards be created for the guards and placed in their personnel files. This system of falsification continued as new guards entered the contract force. The defendant’s supervisor also ordered another employee (the qui tam plaintiff in this action) to prepare false scorecards for the guards. The defendant’s site manager signed the scorecards.

The defendant submitted invoices each month during the one-year duration of the contract. The invoices listed the number of guards in service for that month. In total, the defendant submitted invoices totaling over $4 million, charging a monthly rate for each guard.

Fourth circuit shoots down District Court—Government's allegations prevail

The defendant’s employee instituted a qui tam action under the FCA, alleging false claims. The U.S. Government intervened and alleged that the defendant knowingly caused the creation of a false record material to a false claim, in violation of 31 U.S.C. § 3729(a)(1)(B). The district court dismissed all claims, holding that the Government had failed to allege that the falsified records were actually reviewed. The Government appealed.

The Fourth Circuit held that the FCA imposes liability when a contractor “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” The Court reversed the district court, which had dismissed the claim for failing to allege that the Government actually reviewed the falsified records. The Court held that a false statement was material if it has a natural tendency to influence agency action or is capable of influencing agency action (such as the Government’s decision to pay an invoice), rather than whether the Government actually relied upon the false statement. Accordingly, actual reliance on the falsified documents was not required to adequately state a claim under the FCA. The Fourth Circuit said that “[a] false record may, in the appropriate circumstances, have the potential to influence the Government’s payment decision even if the Government ultimately does not review the record.”

The Fourth Circuit’s decision in Triple Canopy follows decisions in other Circuits and is a warning to government contractors that falsified documentation can create FCA liability regardless of whether the Government relies upon them. Contractors should heed this warning and take steps in their risk management programs to promote accuracy in all reports that may influence payment on a federal contract.