The recent opinion from the U.S. Court of Appeals for the Fourth Circuit in United States ex rel. Badr v. Triple Canopy, Inc., serves as a reminder of the breadth of the civil False Claims Act when applied to federal government contractors. As experienced contractors know, a civil False Claims Act violation can result in the assessment of treble damages and up to $11,000 in penalties for each false claim or false statement. Badr v. Triple Canopy serves as a reminder to all government contractors to maintain strong compliance programs and internal controls designed to avoid the types of contractual violations that can lead to a False Claims Act case.
The U.S. Court of Appeals for the Fourth Circuit creates case law that is binding upon federal courts in Maryland, Virginia, West Virginia, North Carolina, and South Carolina. In Triple Canopy, the Fourth Circuit joined other federal courts across the country in holding that a government contractor can violate the False Claims Act if it submits a request for payment on a federally funded contract and, in the process, withholds information about the contractor’s noncompliance with a “material” contractual requirement. Under this “implied certification” theory of claim falsity, there is no requirement that the contractor submit a false certification of compliance with the contractual term at issue, or otherwise include something false within its payment application. So long as the contractual provision that was violated by the contractor was “material,” and the contractor knew or recklessly disregarded the fact that it was submitting its claim without disclosing the violation of the material contract term, the contractor can be held liable for damages and penalties under the False Claims Act.
According to the Fourth Circuit, “[t]o establish materiality, the Government must allege the false statement had a natural tendency to influence, or [was] capable of influencing, the Government’s decision to pay.” Id. at *6 (internal quotations omitted). The contract itself does not have to expressly state that a provision is material or that payment is conditioned upon compliance with the provision for the contract term to be “material.”
The Triple Canopy case involved a contract to provide security guards at an airbase in Iraq. The contractor allegedly hired guards who did not meet a marksmanship requirement contained in the contract, and allegedly created false shooting scorecards to disguise the deficiency. The Fourth Circuit held that the marksmanship requirement was material because, in the court’s words, “common sense strongly suggests that the Government’s decision to pay a contractor for providing base security in an active combat zone would be influenced by knowledge that the guards could not, for lack of a better term, shoot straight.” Id. The court also noted that the contractor’s alleged efforts to cover up the deficiency also suggested materiality.
Not only did the Fourth Circuit evaluate the materiality of a contractual provision for “implied certification” purposes, it also evaluated the meaning of “materiality” when it has been alleged that a false statement or record made by a contractor was “material to a false or fraudulent claim.” The contractor in Triple Canopy argued that the plaintiff failed to properly allege that the falsified scorecards were material because there was no allegation that the government official in charge of payment actually reviewed the scorecards. The Fourth Circuit rejected this argument, stating “the FCA reaches government contractors who employ false records that are capable of influencing a decision, not simply those who create records that actually do influence the decision.” Id. at *7.
The Fourth Circuit’s holdings in the Triple Canopy case do not present new theories of False Claims Act liability. Instead, the Fourth Circuit is following trends set by other federal courts across the country. The case serves as a reminder to government contractors that they should train their employees to spot deficiencies in contract performance and report them to appropriate personnel within the company so that a decision can be made as to how to address those deficiencies before the contractor submits its next payment request.