On August 29, 2014, the DC Circuit upheld a ruling on summary judgment rejecting claims under the civil False Claims Act (FCA) and finding that a GSA Multiple Award Schedule (MAS) contractor reasonably relied on a supplier’s certification that products sold complied with country of origin requirements of the Trade Agreements Act (TAA).[1]

Background

The relator filed this FCA case against Govplace, a small business IT contractor, claiming that Govplace violated the FCA because it “knowingly” sold certain HP products that were not TAA compliant.  Govplace resold products that it acquired through a distributor, Ingram Micro, under Ingram Micro’s “GSA Pass Through Program” and contended that it reasonably relied on country of origin and TAA certifications that Ingram Micro passed through from manufacturers. 

The TAA applies to GSA MAS contracts and requires the Government to acquire only “US made” or “designated country” end products and essentially prohibits the sale of products that originate from non-designated countries, such as China and India.[2]  Alleged sales of non-compliant products under the GSA MAS contracts have become a frequent basis for FCA suits, some of which have resulted in substantial settlements.

The relator alleged that Govplace’s reliance on Ingram Micro’s certification of TAA compliance was unreasonable and therefore constituted “reckless disregard” within the meaning of the FCA.  The district court granted summary judgment in favor of Govplace, finding that in the absence of some reason to question Ingram Micro’s certification, Govplace’s reliance on that certification was reasonable and that the relator had therefore failed to establish that Govplace had “knowingly” submitted a false claim.

The Court of Appeals Decision

The DC Circuit relied on three principal factors in affirming the district court’s decision:  

  • Ingram Micro’s express certification to resellers such as Govplace that the country of origin information it provided was accurate and that the products it supplied complied with the TAA;
  • GSA’s implicit approval of Govplace’s reliance on Ingram Micro’s  certification as reflected in Administrative Report Cards generated in connection with multiple GSA Contractor Administrator Visits to Govplace; and
  • That the specific evidence (an email from an HP employee and an unsolicited price list sent to Govplace by a competitor) were insufficient, as a matter of law, to make Govplace’s reliance on Ingram Micro’s certification unreasonable.

The DC Circuit also affirmed the denial of several requests for discovery relating to other alleged TAA violations, many of which appeared to be fishing expeditions.  One discovery request related to products sold under a 100% small business set aside contract that Govplace contended was exempt from the TAA.[3]  The DC Circuit found that the relator had failed to contradict Govplace’s claim that sales under that contract were exempt from the TAA and concluded that discovery relating to those sales was therefore “immaterial.”  The second discovery request was denied because it related to “open market” sales of products that were not on Govplace's GSA contract and were below the then applicable TAA threshold of $193,000.  The third request was denied because it related to sales by another contractor.  Although the contractor was part of a GSA Teaming Agreement with Govplace, the other team member had made the sales and the relevant representations regarding the product.

Implications for Contractors

The Govplace decision is significant in that it recognizes that government contractors can rely on representations from their suppliers regarding the country of origin of products acquired for purposes of sale to the Government under contracts subject to the TAA.  However, as Govplace makes clear, to provide a defense to an FCA claim, that reliance must be reasonable.  Moreover, given the FCA’s broad standard of “knowledge” -- which includes not only actual knowledge but also “reckless disregard” (gross negligence) and “deliberate ignorance” (head in the sand), contractors must continue to diligently assess certifications obtained from suppliers and should not ignore credible evidence that might call into question the accuracy of a supplier’s certification as to country of origin/TAA compliance.

Many resellers already seek representations from manufacturers and distributors as to country of origin/TAA compliance, and the result in Govplace is likely to reinforce that trend.  It may also lead to an increase in requests from resellers that their suppliers agree to indemnify them for liability due to allegedly false certifications.  Finally, Govplace also may increase the risk of claims directly against manufacturers and distributors, asserting FCA liability for representations and certifications of country of origin/TAA compliance of products sold to resellers for sale to the federal government.  Although there is not a direct contractual relationship with the Government and there are significant legal and evidentiary hurdles to overcome to apply the FCA in such cases, it is not inconceivable that DOJ or a whistleblower might contend that the FCA applies to false statements made to a reseller regarding country of origin and TAA compliance with respect to products on a reseller’s GSA contract.