The Fourth Circuit ruled recently in U.S. ex rel. Bunk v. Government Logistics N.V., No. 15-1088, 2016 WL 6695787 (4th Cir. Nov. 15, 2016), that the Relators had presented sufficient evidence to proceed to trial against Defendant Government Logistics (GovLog) based on the traditional fraudulent transaction theory of successor liability. The Court declined, however, to expand the scope of successor liability under the FCA to include the substantial continuation theory, which, as discussed here, would have allowed Relators to establish liability by showing merely that GovLog retained its predecessor’s employees, managers, assets, and operations, among other indicia of corporate continuity. See United States v. Carolina Transformer, 978 F.2d 832, 840 (4th Cir. 1992).
The decision is the latest chapter in an action that began over fifteen years ago against GovLog’s predecessor, Gosselin Group. Our prior posts on the case can be found here, here, here, here, here, here and here. Gosselin Group was sued for implementing a bid-rigging scheme to increase prices paid by the Government to ship household goods to and from military personnel in Europe. After Relators’ actions—later consolidated—were unsealed in 2006, GovLog was formed to continue Gosselin Group’s business operations.
In 2013, Relators secured a $24 million judgment against Gosselin Group, and then pursued the instant action to enforce part of that judgment against GovLog, asserting substantial continuation and fraudulent transaction theories of successor liability.
The district court dismissed Relators’ claims, holding first that the substantial continuity theory of successor liability does not apply to FCA actions, and second, that Relators failed to plead the existence of a fraudulent transaction with sufficient particularity to satisfy Rule 9(b). The court also rejected Relators’ fraudulent transaction claims on the merits and granted summary judgment to GovLog in the alternative.
On November 15, 2016, the Fourth Circuit reversed, holding that Relators sufficiently pled the existence of a fraudulent transaction to satisfy Rule 9(b). The Court further held that whether GovLog possessed the requisite intent to establish a fraudulent transaction was a triable issue for the jury.
But the Court also ruled that the substantial continuity theory does not apply to FCA claims. In keeping with United States v. Bestfoods, 524 U.S. 51 (1998), the Court held that the substantial continuity theory only applies to claims where the statute speaks directly to the issue of successor liability, and, “[p]ut simply, the FCA does not speak to successor corporation liability and thus has no impact on the traditional common law principles governing successor corporation liability.” Bunk, 2016 WL 6695787 at *10. Thus, while Relators’ case will proceed, they and future complainants will face the higher burden of establishing one of the traditional theories of successor liability.