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False Claims Act Statistics, News & Analysis

  • 28
  • April
  • 2017

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Do Pay Attention to the Contracting Officer Behind the Curtain: Court Rules that Government Cannot Conceal Reasons Why Its Own Contracting Officer Dumped Decision on which False Claims Case was Built

Earlier this week, the Eastern District of Michigan took up an important privilege issue with significant Escobar implications. In an opinion issued only six days after oral argument, the district court granted in full a motion to compel discovery by BAE Systems Tactical Vehicle Systems, LP (“BAE-TVS”) relating to a FCA case based on allegations of “defective pricing” under the Truth in Negotiations Act (“TINA”). United States v. BAE Systems Tactical Vehicle Systems, LP, No. 15-12225, 2017 WL 1457493 (E.D. Mich. Apr. 25, 2017). [Full disclosure: your authors are both counsel to BAE-TVS in this matter].

In this case, the government alleged that BAE-TVS defrauded the Army by not providing “accurate, current, and complete” cost and pricing data when negotiating a contract to build thousands of military vehicles for use in Iraq in 2008. The FCA case parrots entirely claims made by the Defense Contract Audit Agency (“DCAA”) in a post-award audit, which an Army Contracting Officer (“CO”) adopted in full in what’s called a contracting officer’s final decision (“COFD”) demanding that BAE-TVS repay the Army $56 million plus interest. BAE-TVS brought an appeal in the Armed Services Board of Contract Appeals to challenge this claim.

Enter the Department of Justice. One year after the COFD issued, DOJ filed a FCA case against BAE-TVS alleging facts identical to those in the DCAA audit report on which the COFD was based, claiming the purported TINA violations amounted to fraud. The FCA and Board cases both went forward, with the Board case moving more quickly towards trial. Then in November 2016, after 23 depositions, production of thousands of documents, and with trial approaching, a successor CO abruptly rescinded the earlier COFD, canceled the $56 million debt, and the Army moved to dismiss the Board case. In a post-Escobar world, this was a stunning development, as the Army abandoned the very same claims on which the DOJ’s FCA case was built.

Immediately, BAE-TVS sought discovery for the reasons behind the rescission, and the DOJ refused to give substantive answers (and blocked similar questions posed to the CO at deposition) claiming that Army lawyers provided the CO all of the facts, evidence, and reasons for the decision. BAE-TVS immediately brought a motion to compel, arguing extensively that COs are not permitted to make decisions in secret, that the CO here must be permitted to testify as to the reasons for her decision (particularly given Escobar), and that privilege and work product does not shield her reasons (and the underlying facts) simply because she relied on lawyers to learn and develop them.

Tuesday’s decision rejected the government’s privilege and work product claims in total, with the Court holding: (1) the Army attorneys who advised the CO were not acting as professional legal advisers, but as fact-finders to assist her decision to rescind; (2) the rescission of a COFD is not a “litigation decision,” but rather is tantamount to an agency’s correction of a decision reached through administrative adjudication; and (3) the documents and communications were created to satisfy the CO’s “public requirement” to document her decision to rescind the COFD. The Court heavily relied on precedent from the Court of Federal Claims and the Board making clear that COs have a duty to correct erroneous prior decisions, must have a substantive basis for decisions, and if rely on counsel for that basis, there is no privilege.

While Escobar was not cited, it looms large as a driver for the Court’s ruling. In light of Escobar’s clear statement that the government’s payment of a particular claim “despite its actual knowledge that certain requirements were violated” is “very strong evidence that those requirements are not material,” the knowledge and reasoning of contracting officers who authorize payment on disputed contracts are more important than ever to the analysis. Univ. Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003-04 (2016). Stay tuned for further developments in the case, but there is no doubt that the Court’s ruling underscores a trend that defendants should be entitled to liberal discovery on materiality issues. How the government actually handles a disputed issue is clearly relevant to whether the DOJ has a case.

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