January 31, 2017 Practice Points

Developments in the False Claims Act

The only reliable lesson to be pulled from these early post-Escobar cases is that the concept of materiality is still very much contested.

By Taylor Brown – January 31, 2017

Since the Supreme Court decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) reshaped the decision contours in False Claims Act cases we have been waiting to see how the lower courts implement the guidelines laid out by the Supreme Court. These guidelines include application of the implied-certification theory of liability, as well as the stringent materiality requirements articulated in the decision.

A recent decision in the Eastern District of Virginia offers a small amount of color to those new requirements. Though United States ex rel. Beauchamp v. Academi Training Ctr., Inc., No. 1-11-cv-371 (E.D. Va. Nov. 18, 2016) (Order) has not been finally decided on its merits, the reasoning behind the order denying a motion to dismiss offers an initial read on application of the guidance in Escobar. In Beauchamp, the relators allege that the defendant Academi violated the False Claims Act by fraudulently billing the government for armed security forces who possessed specific weapons qualifications; instead the relators allege that those personnel were not qualified on the weapons and Academi had falsified qualification scores for the personnel.

The Eastern District begins by analyzing whether sufficient facts exist to merit application of implied certification. The court reasons that the situation in Beauchamp is closely analogous to that in Escobar, where the defendant had billed the government for medical services using specific job titles and billing codes. In Escobar the Supreme Court held that billing codes and titles such as “licensed clinical social worker” were specific enough to constitute a representation by the defendant that the personnel possessed corresponding professional qualifications. In Beauchamp, the Eastern District has found that the defendant’s invoices billed using specific job titles that, when coupled with the detailed position descriptions in the contract, may constitute a specific representation by the defendant that the personnel possessed the required marksmanship certification.

While the government must be a recipient of a misrepresentation, it does not need to be wholly contained within the invoices sent to the government. Escobar relied on the detailed qualifications contained in applicable state law to illustrate, while Beauchamp pulls in the position descriptions contained within the base contract. This leaves open the question of how attenuated those supplemental definitions may be and still be considered to inform the specific representation made by the contractor. One of the main criticisms of the implied certification theory prior to Escobar was that it was practically impossible for a government contractor to be aware of every one of the myriad thousands of sometimes vague and contradictory government regulations that may possibly be relevant to a contract. Escobar narrowed the field by stating that the representation must be a specific one made by the contractor, but the facts of Beauchamp appear to be similar enough that we have yet to gain an appreciation of the outer limits of this rule.

Escobar further requires that the representation be a material one. This means that the representation would or actually did influence the government’s decision to pay. The court in Escobar found that the lack of required training and professional certifications would, if known, have caused the government to refuse payment because they were not receiving the bargained-for service. Again, the facts in Beauchamp are so similar that they shed little light on the scope of what is material. Academi was contracted to provide armed security services to U.S. personnel in an active war zone, and in those circumstances, lack of marksmanship certifications would be as material as lack of certification for a healthcare provider. An added indicator of materiality was a contract provision requiring removal of individual security personnel should he or she fail to qualify on each weapon.

It is unclear how this will reconcile with other decisions. On one end, these include a stringent interpretation of materiality as seen in United States ex rel. S.E. Carpenters Regional Council v. Fulton County, Ga., 2016 WL 4158392 (N.D. Ga. Aug. 5, 2016) where the contract simply required full compliance with the Davis Bacon Act; here the court held that “statutory, regulatory, and contractual requirements are not automatically material, even if they are labeled conditions of payment.” In contrast, while hearing a motion to dismiss in United States ex rel. Handal v. Center for Employment Training, the Eastern District of California found that compliance with a broad regulatory scheme was either an express condition of payment or something that defendants had agreed to abide by and so was by default material.

It seems the only reliable lesson to be pulled from these early post-Escobar cases is that the concept of materiality is still very much contested. Defendants should look closely for any opportunity to argue that the plaintiff has filed to plead materiality with sufficient detail. Plaintiffs would be well advised to plead violations with great specificity, because most courts seem to consider broad conclusory statements of contractor malfeasance insufficient.

Taylor Brown is assistant general counsel with PAE Government Services Inc.

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