Last week, in United States ex rel. Badr v. Triple Canopy, Inc., the Eastern District of Virginia wholly dismissed a suit alleging that a security services firm violated the False Claims Act (FCA) and committed other wrongs during its performance at United States military installations in Iraq. The influential court, whose jurisdiction is home to many government contractors, threw out the claims of both the U.S. Department of Justice and a former employee turned whistleblower.
The case arose when a former Triple Canopy, Inc. employee sued the company under the FCA’s qui tam whistleblower provisions. Triple Canopy’s security services contract required certain weapons qualifications and training for security personnel. The whistleblower alleged that although Triple Canopy provided weapons training, it knew its guards were not qualified under the terms of the contract and yet proceeded to bill for the services of more than 300 security guards. The Government intervened and brought additional allegations.
The court in Badr rejected a variety of arguments by the Government under both the FCA and the common law. Perhaps most importantly, however, the Eastern District of Virginia declined to recognize an implied certification theory of FCA liability in the Fourth Circuit. "Implied certification" exposes a contractor to liability for submission of a claim for payment that implies compliance with certain contract provisions or regulations even if they are not expressly stated in the claim. This sweeping theory of liability has gained traction in multiple jurisdictions in recent years and has threatened to turn the FCA into an all-purpose enforcement statute. (See article on implied certification).
In Badr, the court acknowledged that the Fourth Circuit views implied certification as a “questionable” theory of liability under the FCA and that no court within the Fourth Circuit has adopted the theory. The court in Badr noted, however, that even if the theory of implied certification were actionable in the Fourth Circuit, the whistleblower’s claims against Triple Canopy would fail—the whistleblower failed to allege that the certification was a prerequisite to payment. Badr further divides the reach of implied certification on a jurisdictional basis, bucking the trend of the D.C. and First Circuits’ broad adoption of the theory. It may also preview an upcoming decision on implied certification out of the Fifth Circuit, another jurisdiction that has to date declined to adopt the theory of liability. (See article on recent trends in the FCA).
The Eastern District of Virginia also rejected the theory that false records were material to payment simply because they were a type of submission “routinely reviewed” by agency officials. The court seized on the absence of any allegations that anyone at the Government ever even viewed the certifications, let alone specific allegations that anyone relied on them when deciding to make payment to Triple Canopy.
The court also reiterated that the FCA reaches only statements that are “objectively false.” The court rejected the Government’s claim that Triple Canopy violated the FCA by providing an “incorrect description of services provided” when billing for guards. Although Triple Canopy billed for guard services without verifying their weapons training, the contract for security services neither referenced nor defined the term “guard.”
With regard to the Government’s common law claims, the court dismissed the unjust enrichment claim because an express contract controlled the conduct at issue. The court held that unjust enrichment is not available as a remedy in situations when a contract governs the relationship between parties, and the parties in the case did not dispute the existence of a valid contract. The court also dismissed common law fraud and constructive fraud causes of action because of failure to allege reliance.
Pushing back on the Government’s expansive interpretations of the False Claims Act, this ruling is good news for service providers. We have recently seen an uptick in false certification cases based on the provision of labor under government contracts. (See article on Davis-Bacon/Service Contract Act). This decision suggests, however, that there are limits to when a deficiency in the performance of a service contract can give rise to a viable FCA action. The case also reaffirms that not every breach can serve as the basis for FCA liability—to fall within the scope of the FCA, a submission must be objectively false and tied specifically to decisions to pay.