Court of Federal Claims Finds CDA Anti-Fraud Provision’s Statute of Limitations Has a Hard Stop at 6
For federal contractors, the Contract Disputes Act (“CDA”)1 can be a double-edged sword. While the CDA allows contractors to assert contractual claims against the Government, the CDA also contains an anti-fraud provision that the Government can use both to defeat claims and to seek civil penalties from the contractor if the contractor’s asserted claims are based in fraud. This anti-fraud provision provides the Government a powerful tool in litigating against contractors’ CDA claims. But the law surrounding the anti-fraud provision is unsettled in areas, creating uncertainty for contractors when the Government invokes the anti-fraud provision in CDA litigation. A recent Court of Federal Claims (the “Court”) case attempted to settle one of those questions — when liability under the anti-fraud provision must be determined. And, at least for now, the Court’s decision imposing a hard deadline for a determination of fraud under the statute injects some more certainty into the claim litigation process.
Under the CDA’s anti-fraud provision, an agency is prohibited from settling, compromising, paying, or otherwise adjusting a contract claim involving “a misrepresentation of fact or fraud by the contractor.”2 The CDA provides that if a contractor cannot support its claim due to a misrepresentation of fact or fraud, the contractor is liable for an “amount equal to the unsupported part of the claim plus all of the Federal Government’s costs attributable to the unsupported part of the claim.”3 The CDA then states that liability under the anti-fraud provision “shall be determined within 6 years of the commission of the misrepresentation of fact or fraud.”4
This specific anti-fraud limitations period is one of the unsettled areas of the CDA. While the standard statute of limitations for claims under the CDA is six years, this limitations period relates only to the filing of a claim, not to the resolution or determination of it.5 And, most notably, the CDA’s general statute of limitations specifically exempts those claims by the Government “against a contractor that [are] based on a claim by the contractor involving fraud.”6 So what does it mean that “liability” for a misrepresentation of fact or fraud “shall be determined within six years”?
Enter Lodge Construction, Inc. v. United States.7 In Lodge Construction, the Court addressed a dispute under the CDA resulting from the “catastrophic failure” of a cofferdam. The U.S. Army Corps of Engineers (the “Corps”) awarded Lodge Construction, Inc. (“Lodge”) a contract to rehabilitate a levee in 2010. Lodge constructed a temporary cofferdam to perform some of the work. In 2012, the cofferdam failed spectacularly, leading the Corps to retroactively disapprove of Lodge’s cofferdam design. That same year, Lodge filed two certified claims with the contracting officer, after which the contracting officer demanded that Lodge submit a new cofferdam design by May 2012. In July 2012, the Corps terminated Lodge’s contract for default, contending that Lodge had failed to produce a new design or make progress toward finishing the project by the contract deadline. The contracting officer denied Lodge’s certified claims in October 2012, and Lodge appealed the denied claims to the Court.
Five years into the litigation, the Government amended its answer and asserted counterclaims alleging that Lodge committed fraud by submitting: (1) false delay-day costs; (2) double billed and exaggerated equipment costs; and (3) improperly passed-through subcontractor claims. The parties conducted discovery on these fraud counterclaims for two years and then filed cross motions for summary judgment on the fraud issues — nearly eight years after the litigation started. After considering the motions, the Court denied both motions, finding that issues of material fact had yet to be determined. However, the Court also dismissed the Government’s CDA anti-fraud counterclaim as time barred, finding that no “determination” of liability had been made by a court within the six-year period allotted by statute. In reaching this conclusion, the Court made several notable rulings.
First, the Court rejected the Government’s argument that the “discovery rule” applies to the CDA’s anti-fraud provision. Under the discovery rule, a statute of limitations begins running when the claimant knew or should have known of the alleged fraud. But relying on previous Court and Federal Circuit decisions,8 and the Supreme Court’s ruling in Gabelli v. S.E.C.,9 the Court determined that the CDA is a civil penalty enforcement action, and the discovery rule does not apply to such actions. Thus, the Court concluded that the CDA’s anti-fraud six-year statute of limitations begins when the fraud actually occurs, not when the Government discovers it. As a result, the Government’s CDA anti-fraud statute of limitations began running with the submission of Lodge’s certified claims back in 2012.10
Second, the Court held that a court must make the liability determination within the six-year limitations period for the CDA anti-fraud provision to apply. The Government had argued that the anti-fraud provision merely requires the Department of Justice to make a determination on the fraud and to assert a claim within the six-year limitations period. The Court rejected this interpretation, stating that this argument read a “filing deadline” into the CDA. Noting that Congress did, in fact, create a filing deadline under the CDA’s general statute of limitations, the Court concluded that Congress could have — but did not — create a filing deadline for the anti-fraud provision. Instead, based on the language of the statute, and Congress’s specific word choice, the Court held that only courts can “determine” liability.
The Court found some support for its holding in Hernandez, Kroone & Associates, Inc. v. United States,11 a 2013 Court decision that did not directly decide the issue, but indicated that a court must make the liability determination within the six-year limitations period for the anti-fraud provision to apply. The Court’s holding in Lodge Construction, however, departs from two other previous Court decisions. In UMC Electronics Co. v. United States,12 the Court questioned whether Congress intended for parties to avoid liability through protracted litigation but held that, in any event, the contractor’s fraud “was repeated and ongoing” through post-trial briefing, so the claim was not time barred. However, the Court in Lodge Construction rejected the theory that Lodge’s “continued maintenance of its pass-through claims” qualified as ongoing fraud that circumvented the CDA anti-fraud provision’s statute of limitations. In the Court’s view, because “claim” is a term of art that requires a written demand seeking as a matter of right the payment of money in a sum certain, it applies only to a claim submission to a contracting officer and thus “maintenance of allegedly fraudulent legal claims” through a court appeal is not a basis for liability under the anti-fraud provision. The Court also questioned the persuasiveness of SGW, Inc. v. United States,13 a 1990 decision in which the Court held that filing a claim within six years satisfied the anti-fraud provision’s statute of limitations and applied the discovery rule to fraud allegations under the CDA. As the Court noted, SGW, Inc. was decided before the Supreme Court’s decision in Gabelli, making SGW, Inc.’s continuing viability suspect.
Although the Court found “[t]he notion that malefactors should not escape judgment by utilizing overly strict limitations provisions . . . alluring,” it opined that that conclusion conflicted with the plain language of the anti-fraud provision. Thus, because the last incident of fraud alleged occurred in 2012, and no court had determined liability within the anti-fraud provision’s six-year limitations period, the Government’s CDA anti-fraud counterclaim was untimely, and the Court dismissed it for lack of subject matter jurisdiction.
What This Decision Means for Federal Contractors
Three thoughts jump to mind when considering the impact of the Lodge Construction ruling on the CDA’s anti-fraud statute of limitations.
First, it remains to be seen how long the Lodge Construction decision stands. The Department of Justice jealously guards its ability to bring fraud counterclaims, and the Lodge Construction decision makes that more difficult by requiring the Government to not only discover the fraud within six years, but also to obtain a court ruling affirming that there was fraud. Thus, it would not be surprising if the Government were to appeal this decision to the Federal Circuit for review, particularly as it is an issue without much precedent.
Second, even assuming Lodge Construction’s holding remains the last word on the issue, this decision may prove a mixed bag for contractors. It is certainly true that the Lodge Construction decision adds certainty to the claims process. If there is no determination by a court of fraud within six years of the submission of a certified claim to the Government, then the anti-fraud provision of the CDA no longer applies, and the potential for civil penalties under the CDA expires. But because of this certain cutoff point, the Government may pursue its fraud claims more aggressively in order to beat the clock. This could mean quicker assertions of fraud, compressed investigations, and faster trials before the Court. So while knowing that there is a certain expiration date for CDA anti-fraud claims can be reassuring for contractors, that does not mean that the Government is going to abandon its rights under the statute.
Third, and perhaps most importantly, contractors must understand that, as the Court itself noted, this decision “does not immunize fraudulent conduct” and the coast is not all clear once six years elapse without a court determination. While the Court dismissed the Government’s CDA anti-fraud counterclaim in Lodge Construction as untimely, that was only one of three fraud counterclaims the Government asserted against Lodge. In addition to the anti-fraud counterclaim, the Government also brought counterclaims under the False Claims Act14 and a Special Plea in Fraud15 for the same allegedly fraudulent conduct. The Court in Lodge Construction did not dismiss or grant summary judgment on these other counts, which will now proceed to trial. Consequently, Lodge will still need to defend against these other allegations at trial and still faces stiff penalties if the Court later finds fraud from its conduct under its contract. As a result, while the Lodge Construction decision does put strict timeliness guiderails around one Government fraud counterclaim, the Government still has several powerful tools at its disposal with which to pursue fraud under federal contracts that are not so definitely time limited.
1 41 U.S.C. §§ 7101-7109.
2 See id. § 7103(c).
3 Id. § 7103(c)(2).
5 Id. § 7103(a)(4)(A).
6 Id. § 7103(a)(4)(B).
7 Nos. 13-499, 13-800, 2021 WL 1418847 (Fed. Cl. Apr. 14, 2021).
8 Hernandez, Kroone & Assocs., Inc. v. United States, 110 Fed. Cl. 496, 529 n.8 (2013); Daewoo Eng’g & Const. Co. v. United States, 557 F.3d 1332, 1340 (Fed. Cir. 2009).
9 568 U.S. 442 (2013).
10 The Court appears to have held open the possibility that equitable tolling could apply to the anti-fraud provision’s statute of limitations, but it declined to apply that “sparingly-used doctrine” in this case. After reciting the three “extraordinary circumstances” that may justify the application of equitable tolling, the Court concluded that the Government had failed to demonstrate that any of those extraordinary circumstances would justify equitable tolling here. The Court further noted that “lack of knowledge that a claim exists is not a basis for equitable tolling.”
11 110 Fed. Cl. 496.
12 45 Fed. Cl. 507 (1999).
13 20 Cl. Ct. 174 (1990).
14 31 U.S.C. § 3729 et seq.
15 28 U.S.C. § 2514.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.