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KBR Wins Significant FCA Ruling at D.C. Circuit

Published: 02-20-2017

KBR recently won a significant victory at the U.S. Court of Appeals for the D.C. Circuit, which rejected claims under the False Claims Act that the company overbilled the U.S. government for services provided in Iraq.

Citing the U.S. Supreme Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar, the D.C. Circuit ruled on February 17, 2017, that former KBR employee Julie McBride failed to establish a viable fraud claim under the FCA and that her federal lawsuit was properly dismissed in 2014.

The underlying dispute has its origins in 2001, when KBR was awarded a contract to carry out the third round of the U.S. Department of Defense’s Logistics Civil Augmentation Program in support of the global war on terror. As a part of that multibillion-dollar contract, KBR was tasked with providing and maintaining recreation centers where U.S. troops in Iraq could exercise, play games, watch television, and use the internet, among other things.

McBride sued in 2005, alleging that KBR overstated the number troops using the recreation centers. McBride alleged that KBR failed to disclose violations of its obligations to maintain accurate data to support its claimed costs, thereby rendering its claims for payment from the government impliedly false. In December 2014, U.S. District Judge Frederick J. Scullin Jr. granted summary judgment for KBR, ruling that the record did not support McBride’s claims.

The D.C. Circuit affirmed, holding that under Escobar, the disputed headcount figures were not “material” to the government’s decision to pay KBR, vitiating McBride’s FCA case. The appeals court emphasized that the government was aware of McBride’s claims and paid KBR nonetheless.

“[W]e have the benefit of hindsight and should not ignore what actually occurred: the [Defense Contract Audit Agency] investigated McBride’s allegations and did not disallow any charged costs,” the D.C. Circuit ruled. “In fact, KBR continued to receive an award fee for exceptional performance … even after the Government learned of the allegations. This is ‘very strong evidence’ that the requirements allegedly violated by the maintenance of inflated headcounts are not material.”

KBR is represented by V&E partner John Elwood and by senior associate Joshua Johnson.

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