A recent decision from the United States Court of Appeals for the District of Columbia Circuit evaluated whether a regulatory requirement was sufficiently ambiguous that it precluded a finding of liability under the False Claims Act (FCA).

United States ex rel. Purcell v. MWI Corporation involved the sale of water pumps to Nigeria.  The relator alleged that MWI Corporation had made improper certifications to the Export-Import Bank in order to obtain loans that would finance the sales at issue.  Specifically, the allegation was that MWI had falsely certified that it had only paid “regular commissions” to the sales agent who was involved in obtaining the sales contract.  The United States intervened in the litigation.

The case was tried to a jury, which found that the certifications had been false and awarded the Government $7.5 million in damages, which was trebled to $22.5 million. However, the loan at issue had been repaid and the district court found that the repayment of the loan should be offset against the damages.  Accordingly, MWI was only subject to civil penalties of $10,000 per certification for the 58 certifications at issue.  Both sides appealed the verdict.

On appeal before the D.C. Circuit, the primary issue was whether the term “regular commissions” was ambiguous and, if so, whether FCA liability could be based upon such an ambiguous term. The Court noted that the parties did not contest the fact that the term “regular commissions” was ambiguous and acknowledged that this term was subject to at least three possible standards (industry-wide, intrafirm or individual-agent).  The Court explained that “[c]ontentions like these—that a defendant cannot be held liable for failing to comply with an ambiguous term—go to whether the government proved knowledge.”  Ultimately, the Court concluded that MWI’s interpretation of the term “regular commissions” was objectively reasonable.  The Court also found that MWI had not been adequately informed that it was not properly interpreting the term.

Accordingly, the Circuit Court reversed the judgment and remanded the case with instructions to enter judgment in favor or MWI.