On July 26, 2011, the Seventh Circuit affirmed the Northern District of Illinois’ judgment granting summary judgment in favor of defense contractors General Dynamics Corporation and Lockheed Martin Corporation in a long-running, complex case under the False Claims Act (“FCA”) – United States ex rel. Yannacopoulos v. General Dynamics Corp., et al., No. 09-3037 (7th Cir. July 26, 2011).
The Yannacopoulos opinion provides support for defendants in FCA cases that involve complex, long-term contracts with many contingencies, estimates, allowances, predictions, and amendments. This case related to the procurement by Greece of 40 F-16 fighters from defendants. The $616 million purchase price was financed by the U.S. Government, and the contract was to be executed over many years. Relator alleged numerous breaches of the contract and a related Government certification, including that defendants falsely inflated the contract prices; falsely certified they were in compliance with the F-16 contract and their Government certifications; improperly collected funds in advance of expenditures; improperly used U.S. Government funds to satisfy their indirect offset obligations under the contract; and submitted contract modifications constituting “reverse false claims” because the modifications did not identify or return alleged overpayments. In moving for summary judgment, defendants argued that all of their actions were proper; all of the invoices submitted by defendants were consistent with the milestone payment plan, all the milestones were achieved, and the Greek Government approved every invoice.
Throughout the 46-page opinion, the Seventh Circuit reaffirmed that an alleged breach of contract does not give rise to liability under the FCA, and instead Relator needed to show evidence as to all of the elements of his FCA claims, particularly materiality and intent, which Relator failed to prove. Notwithstanding the complexity of the procurement at issue, the Court drilled down on Relator’s actual evidence of fraud, and taking a common-sense approach, rejected Relator’s efforts to create disputed issues of material fact.
In its opinion, the Seventh Circuit adopted or reaffirmed several important legal principles that may help defendants defeat FCA claims in cases that are complex, and involve long-term contracts or government programs with many contingencies, estimates, allowances, predictions and amendments. These principles include:
- A contractor’s alleged faulty calculations or estimates are not actionable under the FCA. An estimate can be fraudulent for FCA purposes in only very limited circumstances, for example when the estimate is made with knowledge of facts that preclude the estimate. [Op. at 29 (quoting United States ex rel. Owens v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 733-34 (4th Cir. 2010)).]
- Differences in interpretation regarding a disputed legal question involving the terms of a contract cannot constitute an objective falsehood for purpose of the FCA. [Op. at 38 (quoting United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1018 (7th Cir. 1999)).]
- Imprecise statements are not actionable under the FCA. [Op. at 45 (quoting Lamers, 168 F.3d at 1018).]
- The alleged failure to disclose information to the Government is not material if the Government took no action or otherwise expressed no concerns when the information was later disclosed. [Op. at 24-25.]
- The non-disclosure of information is not material if the Government was aware of the information from other contractor disclosures, and there is no FCA liability for “fail[ing] to remind” the Government of information already disclosed in the contract. [Op. at 18-19.]
- “Strained” interpretations of the contract or other evidence are not sufficient to survive summary judgment. [Op. at 23, n.10; at 33; at 45-46.]
- Alleged violations of laws, rules or regulations alone do not create a cause of action under the FCA, rather there must be a false certification of compliance when certification is a prerequisite to obtaining a government benefit. [Op. at 9-10, n.4 (quoting United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996)).]