Two recent federal appellate decisions have further expanded the reach of the federal False Claims Act. In United States ex rel. Little v. Shell Exploration & Production Co., No. 11-20320 (5th Cir. July 31, 2012) (“Little v. Shell”), the court held that government auditors can bring suit as qui tam relators under the False Claims Act. In Hooper v. Lockheed Martin Corp., No. 11-55278 (9th Cir. Aug. 2, 2012) (“Hooper v. Lockheed”), the court held that a “false” estimate can lead to False Claims Act liability.


The False Claims Act (“Act” or “FCA”) was enacted during the Civil War to combat widespread fraud by contractors who were selling faulty goods and submitting inflated invoices to the Union Army. The Act imposes civil penalties and treble damages on any person who “knowingly presents or causes to be presented, a false or fraudulent claim for payment or approval.” A civil suit may be brought by any private person on behalf of the government, and, if the suit is successful, the private person shares in the government’s recovery. A suit by a private person is called a qui tam action and the person who brings suit is called a qui tam relator. The importance of the Act’s qui tam provisions is evident from statistics published by the Department of Justice. Since the FCA was amended in 1986 to encourage more suits, the government has recovered more than $30 billion under the Act. Of that amount, more than $21 billion (70%) was recovered in actions started by qui tam relators.

Special provisions govern qui tam suits. The suit must be filed under seal with a copy of the complaint and “substantially all material evidence and information” provided to the government. The government has 60 days to intervene and prosecute the action or move to have the case dismissed. (This 60 day period is often extended by the courts at the government’s request.) If the government elects not to intervene, the case is unsealed and may be prosecuted by the qui tam relator. The relator gets a larger share of any recovery if the government does not intervene.

Numerous cases over the years have dealt with the issues of what is a false claim and who is eligible to be a qui tam relator. The two cases discussed in this article continue the recent trend of expanding the reach of the False Claims Act.

The Auditor Whistleblower

In Little v. Shell, two auditors employed by the Minerals Management Service filed a qui tam suit alleging that Shell had defrauded the government of at least $19 million in royalties by taking unauthorized deductions for expenses to gather and store oil. It was the auditors’ duty to uncover theft and fraud in royalty programs. The government elected not to intervene in the case. The trial judge granted summary judgment for Shell finding that federal auditors were not “persons” who could bring suit under the FCA. The relators filed a timely appeal. The government then filed a friend of the court brief arguing that the FCA bars suits by government employees who discover wrongdoing in the course of their official duties.

First the government argued that the auditors lacked standing to sue because, as federal employees, they would not be allowed to keep their share of any recovery. The court rejected this argument finding that standing depended on whether the alleged fraud against the government would be remedied by the suit, not whether the relators would be allowed to keep the money. The government and Shell next argued that the relators were not “persons” who could bring suit under the FCA. The qui tam section of the FCA is entitled “Actions by private persons,” but the operative part of the statute says “A person may bring a civil action.” The appeals court found that the section’s title did not limit the broad use of the word “person” in the operative language. The court also rejected Shell’s argument that the auditors could not bring suit on behalf of the government because they were the government. The court found that government employees have both private and public identities.

Finally the government and Shell argued that federal conflict of interest statutes and regulations prevent government auditors from bringing a qui tam suit. The court agreed the conflict of interest rules presented difficulties for the government auditor relators, but concluded that the apparent conflict could not be used to override clear and unambiguous statutory language. One judge wrote a concurrence to suggest that Congress should address the conflict between the FCA and the federal statute, 18 U.S.C. § 208, that makes it a crime for a government employee to participate “personally and substantially” as a government employee in a judicial proceeding in which he has a financial interest.


The prospect of government auditors enriching themselves at the expense of government contractors is chilling to say the least. Until Congress acts, government contractors can only hope that the criminal conflict of interest statute will dissuade most government auditors from filing suit as qui tam relators.

Low Bid or False Claim?

In Hooper v. Lockheed, an ex-Lockheed employee filed a qui tam action alleging that Lockheed violated the FCA by knowingly underbidding for a cost plus award fee contract to automate, standardize, and modernize software and hardware used to support space launch operations in California and Florida. Three companies responded to the government’s request for proposals. Proposals were evaluated on a best-value basis. Cost was secondary to four management and technical factors, but was a significant consideration in the proposal evaluation process. Lockheed’s $437.2 million best and final offer was not the low cost proposal. The government conferred with independent consultants to evaluate the competing proposals. The government’s evaluation of Lockheed’s proposal concluded that Lockheed’s risk analysis was unrealistic because the severity of the risks was understated. This resulted in an overstated potential for cost savings. Nevertheless, the government concluded that Lockheed’s proposal provided the best value despite the government’s knowledge that there were risks that might lead to cost growth.

At trial, the relator presented evidence that the government rejected Lockheed’s initial proposal as too high. As a result Lockheed employees were instructed to lower their estimates without regard to actual cost. The relator asserted that this was fraud in the inducement. The district court granted summary judgment for Lockheed because the relator failed to show that Lockheed acted with “the intent to deceive.” The district court did not address Lockheed’s argument that a false estimate can never create liability under the FCA.

On appeal the circuit court reversed and remanded because the district court applied the wrong legal standard. The FCA requires “knowing” submission of a false claim, but defines “knowing” as either actual knowledge or acting with deliberate ignorance or reckless disregard of the truth or falsity of information. By its terms, the FCA does not require “proof of specific intent to defraud.” To clarify the case on remand, the appellate court considered and ruled on Lockheed’s argument that allegedly false estimates cannot be a basis for FCA liability because an estimate is a statement of opinion or prediction and cannot be a false statement. The court rejected Lockheed’s argument and concluded as a matter of first impression that a false estimate can be a basis for FCA liability. The court based its ruling on cases from the First and Fourth Circuits finding that a statement of opinion can give rise to a false claim if the person giving the opinion knew facts that would reasonably preclude the opinion.


Hooper was decided in the context of a contractor allegedly influencing the award of a cost reimbursable contract by understating its estimated costs. Would the same analysis apply to a deliberate underbid on a fixed-price, best-value contract? While the answer to this is uncertain, the chances of a false claim allegation would increase if the successful too-low-bidder submitted just one arguable request for a change order.