Tenth Circuit recently emphasized that the liability imposed under the False Claims Act (FCA) is predicated on a rigorous materiality requirement. Upholding dismissal of a qui tam complaint based on allegations of false certification of compliance with the Davis-Bacon Act , the court, in United States ex rel Sorenson v. Wadsworth Bros. Construction Company, Inc., held that a relator must do more than simply allege that a defendant falsely certified that it complied with a statute under which payment is conditioned upon compliance. Because the relator’s complaint lacked sufficient details from which the court could determine whether the noncompliance was only minor or insubstantial, the court held that sustaining the complaint would “make a mockery” of the demanding materiality standard articulated by the Supreme Court in United Health Services v. U.S. ex rel. Escobar, 579 U.S. 176 (2016) (“Escobar”).

Background

In 2012, the defendant, Wadsworth Brothers Construction (“Wadsworth”), contracted with the Salt Lake International Airport to construct a deicing pad. The agreement required that contractors be paid in compliance with the Davis-Bacon Act. The Act protects local wage standards by requiring that contractors on federally funded building projects pay their employees no less than the locally prevailing wages for corresponding work on similar projects in the area.

The relator, Kelly Sorenson, worked as a truck driver on the deicing development for just two-and-a-half months. He alleged that during that time, his time sheets and pay reflected substantial work on non-Davis-Bacon jobsites, despite the fact that he was only working on federally funded projects at the time—resulting in what he believed to be lower wages. Sorenson also alleged that he learned from other Wadsworth employees that the company often shaved Davis-Bacon time off of federal projects to undercut other bidders on those projects. He alleged that certification of compliance with the Davis-Bacon Act was a prerequisite to Wadsworth’s payment under the contract, and that Wadsworth falsely represented compliance with the Act on Sorenson’s invoices. Sorenson claimed that Wadsworth knew it had not paid him in accordance with the Davis-Bacon Act, and that Wadsworth received money that it was not entitled to from the Federal Government.

The United States District Court for the District of Utah dismissed Sorenson’s claims, citing the Supreme Court’s decision in Escobar, “because Sorenson’s complaint advanced no basis for a finding of materiality other than ‘that the certification of compliance with the Davis-Bacon Act is a prerequisite to the payment’ of Wadsworth’s invoices.”1 The district court subsequently found his allegations of Davis-Bacon Act violations too conclusory “to allege a false or fraudulent act” and granted summary judgment to Wadsworth on Sorenson’s retaliation claim under the FCA. 2

Materiality

The Tenth Circuit affirmed dismissal of the substantive FCA allegations and summary judgment on the retaliation claim. The court held that Sorenson failed to allege a material misrepresentation under the FCA. Specifically, the qui tam complaint was “bereft of critical facts as to the alleged Davis-Bacon violation and limited to nothing more than a naked assertion that truthful certification of Davis-Bacon compliance is a precondition to payment.”3

The court explained that payment under the Davis-Bacon Act is jobsite and task specific, rather than project related, and Sorenson did not allege facts establishing entitlement to Davis-Bacon wages based on the specific task or site.4 He failed to allege details necessary to quantify the alleged underpayments to him, and whether the amount was minor or significant; and he included no allegations about the Department of Labor (“DOL”) handles false certifications of Davis-Bacon Act compliance, either from Wadsworth specifically, or from contractors generally.5 He also did not allege facts indicating whether DOL was aware of the alleged Davis-Bacon Act violations, and if so, whether it continued to enter into contractual arrangements with Wadsworth.6 As a result, there was insufficient information to inform the court about whether noncompliance with the Davis-Bacon Act is genuinely material to DOL’s decision to pay. Because Sorenson made only the bare assertion that “Davis-Bacon compliance is a condition to Wadsworth’s right to payment under the deicing contract,” the complaint “fail[ed] to satisfy the FCA’s ‘demanding’ materiality standard.”7

The Tenth Circuit opinion goes on to emphasize that the FCA is not simply some “all-purpose antifraud statute or a vehicle for punishing garden-variety breaches of contract or regulatory violations,”8 and that it is “not an appropriate vehicle for policing technical compliance with administrative regulations.”9The court appears to be intent upon clarifying that “the FCA does not impose liability for any and all falsehoods.”10

FCA Retaliation

The Tenth Circuit also affirmed the District of Utah’s grant of summary judgment to Wadsworth on Sorenson’s FCA retaliation claim. The Tenth Circuit rejected Sorenson’s argument that Wadsworth was on notice that he was engaging in protected conduct, holding that Sorenson’s allegations that he told friends and supervisors at Wadsworth that he was not paid in accordance with the Davis-Bacon Act were inadequate to fulfill the notice requirements of an FCA retaliation claim. Although a relator does not need to be in active pursuit of a qui tam complaint to show that his employer was on notice of relator’s engagement in protected activity, “a relator’s action still must convey a connection to the FCA,”11 which Sorenson failed to do.

Impact

The Sorenson decision continues a trend towards increasingly rigorous enforcement of the materiality standard espoused by the Supreme Court in Escobar. The Tenth Circuit opinion emphasizes that the FCA is reserved for large-scale frauds with material impact and not an “‘all-purpose antifraud statute.’”12