Fourth Circuit Rules that Falsity Under Escobar Does Not Require Specific Misrepresentations

Courts have focused their attention post-Escobar primarily on whether plaintiffs have met the heightened standard for pleading the violation of a material statute, regulation, or contractual requirement. Under the implied certification theory claims must also still be false, yet the Supreme Court in Escobar provided less guidance as to the contours of falsity. The Fourth Circuit recently advanced a broad definition that permits plaintiffs to avoid pointing to any specific misrepresentations. See United States ex rel. Badr v. Triple Canopy, Inc., No. 13-2190 (4th Cir. May 16, 2017).

Escobar states that plaintiffs can advance a viable implied certification theory “at least where two conditions are satisfied”: A claim “makes specific misrepresentations” and “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” The plaintiffs in Escobar alleged specific misrepresentations, and therefore the Supreme Court declined to decide whether “all claims for payment implicitly represent that the billing party is legally entitled to payment.” Lower courts have been divided as to whether Escobar’s “two-part test” is the only way to establish liability under the implied certification theory, i.e., whether plaintiffs must point to a specific misrepresentation by defendants.

Before Escobar, the Fourth Circuit had decided that relator Badr adequately pled an implied certification claim against Triple Canopy by asserting that the company, a defense contractor, used guards that could not meet the government’s contractual requirements for marksmanship (discussed here). Following Escobar, the Supreme Court remanded the case for further consideration. On remand, the panel first concluded that claims for payment implicitly state a legal entitlement to payment. Accordingly, because Triple Canopy’s alleged noncompliance with contractual marksmanship requirements would have rendered it legally ineligible for payment, its claims to the government were false. Next, the panel readily concluded that “common sense and Triple Canopy’s own actions in covering up the noncompliance” confirmed that using soldiers who could not “shoot straight” violated a material contractual term. As we have discussed elsewhere (recently here and here), when analyzing materiality courts have increasingly looked to the government’s conduct after becoming aware of the allegations at issue. In this case, the government did not renew its contract with Triple Canopy and it intervened in the litigation—factors, the panel noted, which corroborated its conclusion as to materiality.

A copy of the panel’s decision can be found here.