Jan 232017

Ninth Circuit Applies Escobar To Affirm Dismissal of Implied Certification Case

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In U.S. ex rel. Kelly v. Serco, Inc., No. 14-56769, 2017 WL 117154 (9th Cir. Jan. 12, 2017), the Ninth Circuit affirmed a district court’s summary judgment in favor of a FCA defendant because the Relator’s implied false certification claim failed to meet the two-prong standard established by Universal Health Services, Inc. v. United States ex rel. Escobar et al., 136 S. Ct. 1989 (2016).

The defendant, Serco, Inc., was subcontracted by the Department of Defense, Navy Space and Naval Warfare Systems Command (SPAWAR) to help upgrade the wireless communications systems along the United States-Mexico border for the Department of Homeland Security, Customs and Border Protection (DHS). SPAWAR’s “Delivery Orders” required Serco to provide periodic project management and cost reports known as earned value management (EVM) reports. But neither the Delivery Orders nor the contract between SPAWAR and Serco required Serco’s EVM reports to comply with the cost tracking guidelines in American National Standards Institute/Electronic Industries Alliance Standard 748 (ANSI-748), although two other federal rules required such compliance.

The relator, a former Serco employee, alleged that Serco violated ANSI-748 because its reports used a single charge code for all tasks that its employees performed on the project. Serco, however, had previously notified SPAWAR that its accounting system could not accommodate thousands of task-line items for the project. SPAWAR had approved of Serco’s report format and informed Serco that DHS had also approved. Additionally, the same month that the Relator notified DHS of Serco’s alleged non-compliance with ANSI-748, “DHS and SPAWAR determined that EVM reports were no longer necessary or cost-justified” for the project.

Against this backdrop, the relator filed a qui tam action against Serco principally alleging that, under the implied false certification theory of liability, Serco submitted false claims for payment to the government because its EVM reports violated ANSI-748. Sidestepping the question of whether Serco was required to comply with ANSI-748, the Ninth Circuit held that, “[e]ven assuming that Serco’s compliance with ANSI-748 was a condition of payment for its work under [the] Delivery Orders[,]” the Relator’s “implied false certification claim nonetheless fails as a matter of law” under Escobar. As we have previously discussed here, Escobar’s two-prong test for implied false certification claims requires that (1) a defendant made “specific representations about the goods or services provided” to the government, and (2) “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

In affirming summary judgment in favor of Serco, the Ninth Circuit held that the Relator failed to offer evidence related to either of these prongs under Escobar.  First, the Relator offered no evidence that Serco “made any specific representations about [its] performance.” He merely disputed “the format that Serco used to report costs incurred.” (emphasis in original). In any event, the court further held, the relator “failed to establish a genuine issue of material fact regarding the materiality of Serco’s obligations to comply with ANSI-748 or provide valid EVM reports.” Indeed, the government accepted “Serco’s reports despite their non-compliance with ANSI-748,” paid Serco for its work on the project, and stopped using EVM reports to manage the project.  For these reasons, no reasonable jury could find that Serco’s alleged non-compliance with ANSI-748 was material to the government’s payment decisions. Notably, the Ninth Circuit’s reasoning here tracked the Supreme Court’s observation in Escobar that, “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”

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

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