In its first post-Escobar FCA opinion, the Seventh Circuit affirmed summary judgment in favor of defendants in United States ex rel. Sheet Metal Workers Int’l Assoc. v. Horning Investments, LLC, No. 15-1004 (7th Cir. July 7, 2016), and in doing so suggested that there is a high bar for establishing that defendants acted with the requisite knowledge when the claim is that they falsely certified compliance with an ambiguous underlying law.

The case arose from a dispute between a roofing company, Horning, and the union whose members Horning hired to provide labor for renovations to a VA hospital. The parties’ labor agreement was governed by the Davis-Bacon Act, which sets minimum rates of pay and fringe benefits for employees working on federal construction projects. Horning deducted a flat $5 per hour contribution from union members’ paychecks, which was paid into an insurance benefit trust. The union alleged that by making that deduction from each employees’ paycheck—regardless of whether the employee was eligible for benefits, and by failing to tie the deduction to the actual monetary value of the benefits received by employees, Horning was paying its employees less in fringe benefits than was required by the Act. The union brought suit under the False Claims Act, asserting that Horning’s submissions for payment to the Department of Veterans Affairs were false claims.

Chief Judge Diane Wood, writing for herself and Judge Frank Easterbrook, held that the union could not survive summary judgment because there was insufficient evidence that Horning acted with knowledge that its claims were false. The court explained that nothing in the Davis-Bacon Act requires employers to tailor contributions for fringe benefits to benefits actually received by each individual employee. While a provision of the Davis-Bacon Act permits employers to count contributions to an insurance plan for employees who are not yet eligible for benefits toward the Act’s minimum requirements if the plan requires the employer to make such contributions during the waiting period, neither the Act nor the record made clear whether such a provision applied to Horning. The majority concluded “[w]e thus neither can nor do decide whether Horning violated the Davis‐Bacon Act by deducting Trust contributions from the paychecks of employees whose rights to fringe benefits had not yet vested. All that is relevant for present purposes is that there is enough ambiguity about this matter that we cannot infer that Horning either knew or must have known that it was violating the Davis-Bacon Act.”

Judge Richard Posner dissented, finding that an employer experienced with federal projects like Horning must have known about the requirements of the Act. If Horning did not know, “it must have been because [Horning] closed their eyes to those requirements—a good example of ostrich behavior, itself a good example of deliberate indifference within the meaning of the False Claims Act.” Accordingly, Judge Posner concluded that the case should be remanded for trial.

A copy of the court’s opinion can be found here.