Fourth Circuit Recognizes Implied Certification Theory

Posted by Ellyce Cooper and Collin Wedel

On January 8, 2015, in United States ex rel. Badr v. Triple Canopy, Inc., No. 13-2190, — F.3d — (4th Cir. 2015), the U.S. Court of Appeals for the Fourth Circuit revived a False Claims Act suit brought by the U.S. Government and a qui tam relator against security firm Triple Canopy, Inc., explicitly recognizing for the first time the implied certification theory of FCA liability.

The case arose out of a contract between Triple Canopy and the government under which Triple Canopy was to provide security services at an airbase in Iraq. Among several provisions in the contract, each of the security officers that Triple Canopy hired would have to obtain a passing score on a qualifying U.S. Army-grade rifle marksmanship course. In fact, according to the relator, very few guards were capable of meeting this requirement. Nevertheless, Triple Canopy continued to submit monthly invoices to the government for the guards’ services. Triple Canopy allegedly ordered one of its medics, relator Omar Badr, to retroactively falsify marksmanship scorecards for 40 guards. Badr subsequently filed a qui tam suit against Triple Canopy. The government then intervened as to certain counts.

The district court granted Triple Canopy’s motion to dismiss the case, largely on the ground that the defendants had never submitted a demand for payment that contained an objectively false statement. The court reasoned that the Government never alleged that Triple Canopy “invoiced a fraudulent number of guards or billed for a fraudulent sum of money.” Rather, citing Fourth Circuit precedent regarding the “crucial distinction between punitive FCA liability and ordinary breaches of contract,” the court reasoned that the defendant’s actions amounted at most to a breach of contract, not an FCA suit.

Although it affirmed the district court’s dismissal of certain claims, the Fourth Circuit reversed as to the bulk of the plaintiffs’ claims, holding that the district court’s interpretation of the distinction between breach-of-contract suits and FCA suits was too rigid. Instead, after reviewing the relevant circuit opinion and distinguishing its prior precedents, the Fourth Circuit held, “the Government pleads a false claim when it alleges 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. The pertinent inquiry is whether, through the act of submitting a claim, a payee knowingly and falsely implied that it was entitled to payment.”

In so holding, the Fourth Circuit, for the first time, has expressly endorsed the implied certification of FCA liability, at least in certain circumstances. The Court noted that, since its 1999 opinion in U.S. ex rel. Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999), “the weight of authority has shifted significantly in favor of recognizing this category of claims at least in some instances. Thus, the opinion states, “[c]ourts [may] infer implied certifications from silence where certification was a prerequisite to the government action sought.” The court noted its awareness of the fact “that this theory is prone to abuse by parties seeking to turn the violation of minor contractual provisions into an FCA action,” and took pains to highlight the “several key distinctions between this case and . . . garden-variety breaches of contract,” including the government’s active intervention and the clear falsehood at issue here (as opposed to vague contract provisions in other cases promising “diligence” or the like). It also clarified its view that the best way to prevent most contract suits from morphing into FCA suits is “strict enforcement of the Act’s materiality and scienter requirements,” which it concluded were readily met in this case.

A copy of the Fourth Circuit’s opinion can be found here.