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False Claims Act Statistics, News & Analysis

"Common Sense" and Concealment of Noncompliance Lead Fourth Circuit to Find Triple Canopy Invoices Hit Their Materiality Mark and Were Impliedly False Despite No Specific False Representations

Earlier this week, the Fourth Circuit issued its first substantive post-Escobar implied certification opinion in the closely watched U.S. ex rel. Badr v. Triple Canopy. Prior to Escobar, the Fourth Circuit found that the government’s complaint-in-intervention stated an implied certification FCA claim, causing Triple Canopy to seek cert. After issuing the Escobar opinion, the Supreme Court remanded the case to the Court of Appeals to reconsider in light of Escobar. The Fourth Circuit largely affirmed its prior decision, finding that the government had sufficiently alleged both falsity and materiality. [Disclosure: Two of the authors of this piece represented amici in support of Triple Canopy’s cert. petition.]

The opinion is a disappointment, as it ignores (at least we would argue), key language in Escobar about what is required to plead falsity and materiality. That said, the Fourth Circuit’s opinion still may be of some use to potential FCA defendants in that it (1) relies heavily on Triple Canopy’s alleged concealment (which should be fairly unique to this case) to find materiality; and (2) provides a basis for a defendant to argue that the government’s decision not to intervene (which happens in the majority of qui tams) could be evidence of immateriality.

Turning to the facts, the government alleges that Triple Canopy, while contracting to provide security services in Iraq, submitted false claims for payment for guards who did not meet the marksmanship skill level required by the contract. Crucially, Triple Canopy’s invoices did not state (and were not required to state) that the guards met the marksmanship requirements. Rather, the invoices showed only that Triple Canopy billed for “guards,” the number of guards, and the number of hours they worked.

Falsity. Despite the fact that the invoices contained no representation about the qualifications of the guards, the Fourth Circuit found that the word “guard” on the invoices qualified as a representation that the guards met the marksmanship requirements. The court concluded that this representation reflected the sort of “half-truth” that the Escobar Court found was sufficient (and defendants would say was required) to meet the FCA’s falsity requirement. LLB’s readers will recall that in Escobar, the Supreme Court found that Universal Health’s invoices contained half-truths because they used billing codes to bill for certain services that could be provided only by professionals with certain qualifications. The Fourth Circuit explained “[j]ust as in Universal Health, anyone reviewing Triple Canopy’s invoices would probably—but wrongly—conclude that [Triple Canopy] had complied with core [contract] requirements.” In effect, the Fourth Circuit conflated falsity with materiality by concluding that Triple Canopy’s bills were false because it billed for “guards” while allegedly not complying with a core (or material) contract requirement, even though the invoices made no mention of the guards’ marksmanship skills.

What is more, where Escobar left open the question of whether all claims for payment—even those without specific representations—implicitly represent that the billing party is legally entitled to the payment, the Fourth Circuit went further. As it had in its pre-Escobar opinion, it concluded again that “the Government pleads a false claim when it alleges a request for payment under a contract where the contractor withheld information about its noncompliance with material contractual requirements.”

Materiality. The Fourth Circuit found that “common sense” compels the conclusion that “[g]uns that do not shoot” (which was discussed during the Supreme Court argument) “are as material to the Government’s decision to pay as guards that cannot shoot straight.” It also pointed to the government’s decision not to renew its contract with Triple Canopy and the government’s “immediate” intervention in the case in finding materiality. Notably absent from the materiality analysis, however, is any discussion of the government’s conduct in the “mine run” of cases when a contractor bills for guards with poor marksmanship, which the Supreme Court said would be “strong evidence” regarding materiality. The reason for this appears to be, as Triple Canopy pointed out in its brief, that the complaint (drafted years before the Escobar opinion) contains no allegations about the government’s conduct in other cases. One option for the Fourth Circuit would have been to remand with instructions to dismiss with leave for the government to replead, but instead the court green-lighted the case to move forward on the existing complaint.

While the defense bar will disagree with the Fourth Circuit’s opinion, its holding is likely limited due to the case’s unique fact pattern. The court was very focused on the contractor’s alleged concealment of unqualified guards, a likely uncommon set of facts. And its reference to the government’s quick intervention decision is more helpful for defendants than for the government/relators’ bar given that the government declines most relator-initiated suits. We will continue to monitor the evolution of this case on remand and other post-Escobar cases. 

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