January, 2012, saw two different examples of the Government using the False Claims Act to bring a gun to a knife fight. In the first case the gun won the day. In the second, it backfired. Both cases were brought in the U.S. Court of Federal Claims and in both the Government was the defendant in a breach of contract action. The Government raised the FCA as a counter-claim in both actions, in one near the end of the trial. In other cases of interest, the D.C. District Court looked at estoppel as a defense to an FCA case, and the Middle District of Florida Court dealt with a reverse false claim case involving brothers trying to hide assets owed as part of a criminal plea agreement. For a more detailed discussion of each case, please read on.
Chapman Law Firm, LPA v. U.S. (Fed.Cl. January 18, 2012)
The Chapman case is interesting, not for its analysis of the False Claims Act, but for the way the Government attempted to use it as a bludgeon. Chapman Law Firm brought a claim against the Government in the Court of Claims, alleging the United States breach of contract and related claims. The United States responded with a counter-claim for violations of the False Claims Act. The U.S. argued that Chapman not only breached the contract by failing to use licensed real estate inspectors as required by its reading of an Ohio statute, but also that such failure, combined with bills for services pursuant to the contract, constituted violations of the False Claims Act.
The Court did not rule directly on any FCA issues. It did rule, however, that the Ohio statute was not clear as applied, that the contract was ambiguous, that the ambiguity must be read against the U.S. as the drafter of the contract, and therefore denied its motion for partial summary judgment on the breach of contract issue. Given that ruling it seems unlikely that the U.S. could prevail on a False Claims Act cases alleging knowing violation of the same statute and contract.
Railway Logistics International v. U.S. (Fed.Cl. January 17, 2012)
The government was more successful in another case in which it brought an FCA counterclaim to a contract action. RLI, which had a $2 million contract to provide railroad parts in Iraq, failed to comply with the contract. It provided far fewer parts than required, did so late, and those it delivered were not assembled as required. RLI alleged their failure was due to the government’s repeated changes in the Contracting Office. RLI submitted a certified claim, not for the value of the parts delivered, but for more than $6 million, based upon invoices from subcontractors, its own internal accounting system, and damages due to the government’s alleged delays and changes.
The U.S. sought civil damages pursuant to the FCA, bringing its counterclaim during trial, after most witnesses had testified. RLI moved to dismiss the counterclaim as a violation of its right to trial by jury. The Court denied the claim, finding, based upon McElrath v. U.S., 102 U.S. 426, 440 (1880), that once a claimant brings suit against the government the Court of Claims may adjudicate a counterclaim without a jury.”
U.S. v. Honeywell International, Inc. (D.D.C. 2012)
Honeywell raised a defense of estoppel in response to an FCA case brought by the U.S. The Court noted that equitable estoppel can apply against the government, but only under extreme circumstances including “a ‘definite’ representation to the party claiming estoppel” and actions by the government that rose to the level of “affirmative misconduct.” Honeywell pointed to the government’s failure to act, rather than a definite representation or affirmative misconduct.
Honeywell also raised a defense of waiver. Here, the Court noted that even if the actions of the Department of Justice employees constituted waiver, there was no showing they acted with the Attorney General’s authority to waive, and therefore the waiver defense could not stand.
U.S. v. Najjar (M.D.Fla. January 23, 2012)
In a particularly interesting use of the False Claims Act, the U.S brought action against two brothers for a reverse false claim, using a false record or statement to avoid an obligation to pay or transmit money to the Government.” Samir Najjar pled guilty to making false statements. As part of his plea agreement he was to pay $5 million in restitution to CHAMPUS, private insurance companies, and others. He paid $1.65 million before the sentence was imposed, but nothing since then. He filed financial disclosure forms to show that he lacked the means to make payments. However, the Government showed that he transferred millions of dollars worth of real estate and cars to his brother and his wife, though he continued to live in the former and drive the latter.
The Court denied a motion to dismiss based upon the argument that the debt was owed to private parties, not the Government. It did so because, even under the pre-FERA FCA, a reverse false claim included a statement to avoid an obligation to transmit money to the Government, not just an obligation to pay the Government.
For more information, please contact David B. Honig at dhonig@wp.hallrender.com or (317) 977-1447.
