07 September 2018

What Might A Justice Kavanaugh Portend for False Claims Act Jurisprudence?

With Judge Brett Kavanaugh seemingly headed toward confirmation to replace Justice Anthony Kennedy on the Supreme Court, readers of this blog may be interested in his prior cases addressing the False Claims Act.  A judge on the United States Court of Appeals for the D.C. Circuit for over a decade, Judge Kavanaugh has been described as a conservative textualist and a “stalwart originalist,”[1] more in line with the late Justice Antonin Scalia than swing vote Justice Kennedy, for whom Kavanaugh clerked alongside recently appointed Justice Neil Gorsuch in 1993-1994, and whom he would replace if confirmed.  

Judge Kavanaugh sat on panels of the D.C. Circuit in appeals of 12 FCA cases, authoring an opinion in one of them, In re Kellogg Brown & Root, Inc., 410 U.S. App. D.C. 382, 756 F.3d 754 (2014) (“In re KBR”).  As we previously reported, the primary issue on appeal involved application of the attorney-client privilege to internal investigations in the context of a qui tam FCA dispute.  Writing for the unanimous panel, Judge Kavanaugh held that the district court erred in denying attorney-client protection for an internal investigation conducted by in-house counsel and his agents into allegations of cost inflation and kickbacks for government contracts during the Iraq War.  The lower court’s decision had disturbed the common understanding of privilege in the business setting, which was thought to have been well-established by Upjohn Co. v. United States, 449 U.S. 383 (1981).  In Upjohn, the Supreme Court held that confidential employee communications made during an internal investigation led by the business’s lawyers are protected by the attorney-client privilege.  The district court applied a novel legal standard to the KBR internal documents it reviewed in camera, holding that attorney-client privilege was not applicable where “the communication would not have been made ‘but for’ the fact that legal advice was sought.”  In re KBR, at 756 (citations omitted).  Judge Kavanaugh called this legal standard “irreconcilable with Upjohn,” disagreed with distinctions drawn by the district court, and clarified that the “primary purpose” test does not require that seeking legal advice be the sole purpose of the communication, only that it be a primary purpose.  Id. at 756, 758.  Judge Kavanaugh’s opinion stopped what could have been a severe erosion of the attorney-client privilege for businesses, and particularly government contractors, who are often required by regulation to maintain compliance programs and conduct internal investigations in response to allegations of wrongdoing.  The panel ultimately dismissed the claims in the underlying case, United States ex rel. Barko v. Halliburton Co., 709 Fed. App’x 23 (2017), as a “hodgepodge of wrongdoing and mismanagement” but nothing rising to the level of a false claims violation.

Judge Kavanaugh did not author opinions in any of the other 11 FCA cases which he heard.  In United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027 (D.C. Cir. 2017), which we previously reported on here, the relator alleged that KBR continued to receive performance-based payments for services on military bases after the government learned of allegations the company had overbilled using inflated soldier headcounts.  The contract with the government did not require KBR to track headcount data; KBR merely “voluntarily undertook to track this data and, at times, provided it to the Government.”  Id. at 1032.  The court held that plaintiffs were unable to show that the headcounts had been material to the government’s payment decisions, as required by the Supreme Court’s decision in Escobar.

In United States ex rel. Purcell v. MWI Corp.¸ 807 F.3d 281 (D.C. Cir. 2015), Judge Kavanaugh joined the unanimous panel opinion authored by Judge Rogers, which we covered here and here.  At issue was whether a false claim is made “knowingly” where there is a lack of warning or notice from the government for a key term in the regulation.  MWI had agreed to sell water pumps to seven states in Nigeria, and the parties obtained financing from the Export-Import bank.  During the financing process, MWI certified that it paid only “regular commissions” to its sales agent, who received over 30% of the loan amount, about $28 million.  A jury awarded the government $7.5 million trebled to $22.5 million pursuant to the FCA, but the government appealed on damages because the district court offset the damages with Nigeria’s repayment of the loan, reducing the damages to $0.  MWI cross-appealed, asking the D.C. Circuit to reverse the judgment because the government failed to establish the company had made a false claim or that it had done so knowingly.  The appeals court sided with MWI, holding that MWI’s interpretation of “regular commissions” was a “facially reasonable interpretation of that undefined and ambiguous term.”  Id. at 284.  Importantly, the appeals court also dismissed the government’s claim that MWI had a duty to seek clarification before making the certification, id. at 290, a common government argument when responding to “ambiguous regulation” defenses.  Citing the “objective knowledge standard,” as clarified while this litigation was pending by the Supreme Court in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), the court required “evidence that the Bank, or other government entity, had officially warned MWI away from its otherwise facially reasonable interpretation” to conclude that MWI had made a knowingly false certification.  Id. at 289.  Informal guidance is not enough.  Id. at 290.  This decision’s interpretation of the FCA is important because it signals a shift in the burden of avoiding the negative consequences of failing to define regulatory terms from the private sector to the government.[2]

In addition to these cases, Judge Kavanaugh sat on two other panels that issued FCA decisions that found in favor of the defendants.  In United States ex rel. Folliard, 764 F.3d 19 (D.C. Cir. 2014), the court concluded that a government contractor was not liable for false certifications made under the Trade Agreements Act that were made in reasonable reliance on the supplier’s representations.  In United States ex rel. Schneider v. JPMorgan Chase Bank, 878 F.3d 309 (D.C. Cir. 2017), the court found for the bank, concluding that the relator’s allegations were insufficient to state a claim under the FCA and noting that the bank, at most, had a contingent possibility of owing penalties to the government, not an obligation, which is required by the FCA.

Judge Kavanaugh sat on only one panel that issued a decision in favor of a relator.  In United States ex rel. Davis v. District of Columbia, 679 F.3d 832 (D.C. Cir. 2012), which we covered here, the court interpreted the Supreme Court’s opinion in Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007) as meaning “[t]he relator can be an ‘original source’ to the government of his information even if the publicly disclosed information came from someone else.”  Davis at 838 (impliedly overturning United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675 (D.C. Cir. 1997) (relied on by the lower court)).  The practical impact of Davis was minimal, however, because Congress had already amended the FCA in 2010 to expand the definition of “original source” to include individuals who voluntarily provide information to the Government that is “independent of and materially adds to the publicly disclosed allegations or transactions.”  31 U.S.C. § 3730(e)(4)(B) (Supp. 2010).

While it is difficult to generalize, given the relative infrequency with which False Claims Act cases are reviewed by the Supreme Court and the fact that Judge Kavanaugh has not himself authored many FCA opinions, the decisions in the cases in which he has participated suggest that he may be likely to strictly interpret the FCA and hold the government and qui tam plaintiffs to their rigorous burdens of pleading and proof.


[1] Bennett, Brian, Trump’s Justice, TIME 22 (July 23, 2018).

[2] Another D.C. Circuit case, on which Kavanaugh also served as a panelist, was decided shortly after Safeco on similar grounds, i.e. ambiguity construed in favor of the defendant corporation.  See United States ex rel. K & R Ltd. Partnership v. Mass. Housing Finance Agency¸530 F.3d 980 (D.C. Cir. 2008).  However, it did not receive as much attention, perhaps because it merely affirmed the judgment of the district court.

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