United States ex rel. Omar Badr v. Triple Canopy, Inc.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2190
UNITED STATES OF AMERICA,
Intervenor/Plaintiff – Appellant,
and
UNITED STATES ex rel. OMAR BADR,
Plaintiff,
v.
TRIPLE CANOPY, INC.,
Defendant – Appellee.
No. 13-2191
UNITED STATES ex rel. OMAR BADR,
Plaintiff – Appellant,
v.
TRIPLE CANOPY, INC.,
Defendant – Appellee.
Appeals from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (1:11-cv-00288-GBL-JFA)
Argued: October 30, 2014 Decided: January 8, 2015
Before SHEDD, AGEE, and WYNN, Circuit Judges.
Affirmed in part, reversed in part, and remanded by published
opinion. Judge Shedd wrote the opinion, in which Judge Agee and
Judge Wynn joined.
ARGUED: Charles W. Scarborough, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C.; Earl N. Mayfield, III, DAY & JOHNS,
PLLC, Fairfax, Virginia, for Appellants. Tara Melissa Lee, DLA
PIPER LLP (US), Reston, Virginia, for Appellee. ON BRIEF:
Stuart F. Delery, Assistant Attorney General, Joyce Branda,
Acting Assistant Attorney General, Michael S. Raab, Civil
Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.;
Dana J. Boente, Acting United States Attorney, Richard W.
Sponseller, Assistant United States Attorney, Peter S. Hyun,
Assistant United States Attorney, OFFICE OF THE UNITED STATES
ATTORNEY, Alexandria, Virginia, for Appellant United States of
America. Paul A. Prados, Milt C. Johns, Christopher M. Day, DAY
& JOHNS, PLLC, Fairfax, Virginia, for Appellant Omar Badr.
Joseph C. Davis, Reston, Virginia, Paul D. Schmitt, DLA PIPER
LLP (US), Washington, D.C., for Appellee.
2
SHEDD, Circuit Judge:
The Government appeals the district court’s dismissal of
Counts I and II of its complaint under the False Claims Act
(FCA) against Triple Canopy, Inc. Omar Badr, the original
relator, also appeals the dismissal of his complaint — including
four additional FCA counts (Counts II-V) — against Triple
Canopy. For the following reasons, we conclude that the district
court correctly dismissed Counts II-V of Badr’s complaint, but
erred in dismissing Counts I and II of the Government’s
complaint.
I.
In June 2009, the Government awarded a firm-fixed price
contract to Triple Canopy to provide security services at the Al
Asad Airbase, the second largest airbase in Iraq. 1 Triple Canopy
was one of several security firms awarded the Theatre-Wide
Internal Security Services contract; under that contract,
security at specific locations was governed by individual Task
Orders. The Task Order for Al Asad was TO-11.
Under TO-11, Triple Canopy agreed to provide “internal
security services” at Al Asad and to “supplement and augment
1
Because this appeal stems from the grant of a motion to
dismiss, we accept as true all well-pled facts in the complaint
and construe them in the light most favorable to the Government
and Badr. Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc.,
591 F.3d 250, 255 (4th Cir. 2009).
3
security operations.” (J.A. 98). These services included
“providing internal operations at entry control points, internal
roving patrols,” and “prevent[ing] unauthorized access” by
enforcing “security rules and regulations regarding authorized
access to [Al Asad] including internal check points.” (J.A. 98).
TO-11 identified 20 “responsibilities” Triple Canopy was tasked
with in providing these services, including typical security
functions such as repelling attacks, providing escorts,
performing entrance searches, and preventing theft, as well as
ancillary services such as running background checks, checking
ammunition lists, and computerizing personnel systems. (J.A.
99). As relevant here, the final responsibility was to “ensure
that all employees have received initial training on the weapon
that they carry, [and] that they have qualified on a US Army
qualification course.” (J.A. 99) (marksmanship requirement). To
satisfy the marksmanship requirement, employees had to score a
minimum of 23 rounds out of 40 from a distance of 25 meters.
Qualifying scorecards for the guards were to be maintained in
their respective personnel files for one year. Nothing in TO-11
expressly conditioned payment on compliance with the
responsibilities.
To fulfill TO-11, Triple Canopy hired approximately 332
Ugandan guards to serve at Al Asad under the supervision of 18
Americans. The guards’ personnel files indicate that they met
4
the qualifying marksmanship score at a course in Kampala,
Uganda. Upon arriving at the base, however, Triple Canopy’s
supervisors learned that the guards lacked the ability to “zero”
their rifles and were unable to satisfy the qualifying score of
23 on the marksmanship course. Thus, shortly after their
arrival, Triple Canopy supervisors were aware that the Ugandans
could not satisfy the final responsibility of TO-11: the
marksmanship requirement. Nonetheless, Triple Canopy submitted
its monthly invoices for the guards. After a failed training
attempt, a Triple Canopy supervisor directed that false
scorecard sheets be created for the guards and placed in their
personnel files. Because there was attrition, replacement
Ugandan guards arrived at Al Asad during the year. These guards
were also unable to satisfy the marksmanship requirement, and
consequently additional false scorecards were created.
In May 2010, toward the end of the contract, Triple Canopy
attempted to have 40 Ugandan guards qualify in marksmanship
before leaving for vacation. None could do so. A Triple Canopy
supervisor ordered Omar Badr, a Triple Canopy medic, to prepare
false scorecards for the guards, reflecting scores of 30-31 for
male guards and 24-26 for the female guards. Triple Canopy’s
site manager signed these new scorecards and post-dated them,
showing that the guards qualified in June 2010.
5
TO-11 was in effect for one year, and Triple Canopy
presented 12 monthly invoices for guard services during that
time. Each invoice listed the number of guards in service for
that month; the term “guard” was undefined. Pursuant to TO-11, a
contracting officer representative (COR) was “responsible for
acceptance of the services [Triple Canopy] performed.” (J.A.
41.) The COR was appointed by the Government and confirmed
acceptance of Triple Canopy’s guard services by filing a
Material Inspection and Receiving Report (DD-250) Form. (J.A.
41). The DD-250 required the COR to accept the services if they
“conform[ed] to contract” and to sign the form if the services
provided “were received in apparent good condition.” (J.A. 73).
The COR completed twelve DD-250 forms, none of which included
any certification or endorsement from Triple Canopy. In total,
Triple Canopy submitted invoices totaling $4,436,733.12 for the
Ugandan guards—a rate of $1,100 per month for each guard. Triple
Canopy did not receive a renewal of TO-11, and the Ugandan
guards were thereafter dispatched to four other contract sites
around Iraq: Cobra, Kalsue, Delta, and Basra.
Badr eventually instituted a qui tam action under the FCA
against Triple Canopy in the Eastern District of Virginia. Badr
alleged five false claims counts: Al Asad (Count I) and Cobra,
Kalsue, Basra, and Delta (Counts II-V). The Government
intervened on the Al Asad count and filed an amended complaint
6
alleging that Triple Canopy knowingly presented false claims, in
violation of 31 U.S.C. § 3729(a)(1)(A) (Count I), and caused the
creation of a false record material to a false claim, in
violation of § 3729(a)(1)(B) (Count II). Specifically, the
Government alleged that Triple Canopy knew the guards did not
satisfy TO-11’s marksmanship requirement but nonetheless “billed
the Government the full price for each and every one of its
unqualified guards” and “falsified documents in its files to
show that the unqualified guards each qualified as a ‘Marksman’
on a U.S. Army Qualification course.” (J.A. 24). The Government
also brought several common law claims.
The district court granted Triple Canopy’s motion to
dismiss the FCA claims. United States ex rel. Badr v. Triple
Canopy, Inc., 950 F.Supp.2d 888 (E.D. Va. 2013). The court first
dismissed Count I because the Government failed to plead that
Triple Canopy submitted a demand for payment that contained an
objectively false statement. Next, the court dismissed Count II
because the Government (1) failed to allege a false claim and
(2) failed to allege that the COR ever reviewed the scorecards.
Finally, the court dismissed Counts II-V in Badr’s complaint
because he failed to plead with particularity the facts giving
rise to the claims. The court also dismissed Count I of Badr’s
complaint, concluding that Badr lacked standing to press that
claim because of the Government’s intervention. The court later
7
dismissed the Government’s remaining common law claims. 2 Both the
Government and Badr filed timely appeals.
II.
We review de novo the district court’s dismissal of a
complaint for failure to state a claim under Federal Rule of
Civil Procedure 12(b)(6). United States ex rel. Rostholder v.
Omnicare, Inc., 745 F.3d 694, 700 (4th Cir. 2014). To survive a
motion to dismiss under the rule, a complaint must “state a
claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks
omitted). Facts that are “merely consistent with” liability do
not establish a plausible claim for relief. Id. (internal
quotation marks omitted).
In addition, claims under the FCA “must also meet the more
stringent ‘particularity’ requirement of Federal Rule of Civil
Procedure 9(b).” United States ex rel. Ahumada v. NISH, 756 F.3d
2The district court dismissed each of these counts without
prejudice. We requested the parties to brief whether the orders
are appealable under Domino Sugar Corp. v. Sugar Workers Local
Union 392, 10 F.3d 1064, 1066-67 (4th Cir. 1993) (holding
dismissal “without prejudice” is not an appealable order if the
“plaintiff could save his action by merely amending his
complaint”). Pursuant to Chao v. Rivendell Woods, Inc., 415 F.3d
342 (4th Cir. 2005), both the Government and Badr have elected
to “stand” on their complaints and “waived the right to later
amend unless we determine that the interests of justice
require[] amendment.” Id. at 345. Accordingly, we have
jurisdiction to hear these appeals.
8
268, 280 (4th Cir. 2014). Rule 9(b) requires that “an FCA
plaintiff must, at a minimum, describe the time, place, and
contents of the false representations, as well as the identity
of the person making the misrepresentation and what he obtained
thereby.” United States ex rel. Wilson v. Kellogg Brown & Root,
Inc., 525 F.3d 370, 379 (4th Cir. 2008) (internal quotation
marks omitted). Imposing this requirement serves to deter
“fishing expeditions.” United States ex rel. Harrison v.
Westinghouse Savannah River Co., 176 F.3d 776, 789 (4th Cir.
1999) (Harrison I).
III.
A.
Section 3729(a)(1)(A) prohibits any person from knowingly
“caus[ing] to be presented” to the Government a “false or
fraudulent claim for payment.” 31 U.S.C. § 3729(a)(1)(A). To
prove a false claim, a plaintiff must allege four elements: (1)
a false statement or fraudulent course of conduct; (2) made with
the requisite scienter; (3) that is material; and (4) that
results in a claim to the Government. United States ex rel.
Harrison v. Westinghouse Savannah River Co., 352 F.3d 908, 913
(4th Cir. 2003) (Harrison II). A false statement is material if
it has “a natural tendency to influence, or be capable of
influencing,” the Government’s decision to pay. 31 U.S.C. §
3729(b)(4). Scienter under the FCA encompasses actual knowledge,
9
deliberate indifference, and reckless disregard, but does not
require proof of specific intent to defraud. 31 U.S.C. §
3729(b)(1).
The phrase “false or fraudulent claim” should be “construed
broadly,” Harrison I, 176 F.3d at 788, “to reach all types of
fraud, without qualification, that might result in financial
loss to the Government,” United States v. Neifert-White Co., 390
U.S. 228, 232 (1968). Liability thus attaches “any time a false
statement is made in a transaction involving a call on the U.S.
fisc.” Harrison I, 176 F.3d at 788.
The district court determined that Count I failed to state
a claim because the Government did not allege the first element,
a false statement or fraudulent course of conduct. In the
court’s view, the Government “failed to sufficiently plead that
[Triple Canopy] submitted a demand for payment containing an
objectively false statement.” Triple Canopy, 950 F.Supp.2d at
890. The court reached this determination by reasoning that the
Government never alleged that Triple Canopy “invoiced a
fraudulent number of guards or billed for a fraudulent sum of
money.” Id. at 896. The Government argues that Triple Canopy
submitted false claims because its monthly invoices billed the
Government for guard services although the company knew its
guards had failed to comply with one of TO-11’s
responsibilities, the marksmanship requirement.
10
We have previously recognized that a false claims plaintiff
cannot “shoehorn what is, in essence, a breach of contract
action into a claim that is cognizable under the” FCA. Wilson,
525 F.3d at 373. See also United States ex rel. Steury v.
Cardinal Health, Inc., 625 F.3d 262, 268 (5th Cir. 2010) (noting
that courts “seek[] to maintain a crucial distinction between
punitive FCA liability and ordinary breaches of contract”)
(internal quotation marks omitted). In Wilson, we concluded that
two qui tam relators failed to plead a false claim when the
claim was based on “mere allegations of poor and inefficient
management of contractual duties.” Wilson, 525 F.3d at 377(internal quotation marks omitted). “An FCA relator cannot base
a fraud claim on nothing more than his own interpretation of an
imprecise contractual provision,” id. at 378, we explained,
particularly where the Government never “expressed
dissatisfaction” with the contract’s performance, id. at 377.
See also Harrison I, 176 F.3d at 792 (noting fraud is limited to
“expressions of fact which (1) admit of being adjudged true or
false in a way that (2) admit of empirical verification”)
(internal quotation marks omitted).
We reiterated the line between breaches of contract and FCA
claims in United States ex rel. Owens v. First Kuwaiti General
Trading & Contracting Co., 612 F.3d 724, 734 (4th Cir. 2010). In
Owens, we rejected claims from a qui tam relator regarding the
11
construction of the United States embassy in Baghdad. While
noting that some of the construction work required remediation,
we nonetheless explained that “[t]o support an FCA claim, there
needs to be something more than the usual back-and-forth
communication between the government and the contractor over
this or that construction defect and this or that corrective
measure.” Id. at 729. We summarized the relators’ claims as
“garden-variety issues of contractual performance” involving “a
series of complex contracts pertaining to a construction project
of massive scale.” Id. at 734. We expressly recognized that the
purposes of the FCA were not served by imposing liability on
“honest disagreements, routine adjustments and corrections, and
sincere and comparatively minor oversights,” “particularly when
the party invoking [the FCA] is an uninjured third party.” Id.While we have guarded against turning what is essentially a
breach of contract into an FCA violation, we have also continued
to recognize that the FCA is “intended to protect the treasury
against the claims of unscrupulous contractors, and it must be
construed in that light.” Id. To satisfy this goal, courts have
recognized that “a claim for payment is false when it rests on a
false representation of compliance with an applicable . . .
contractual term.” United States v. Sci. Applications Int’l
Corp., 626 F.3d 1257, 1266 (D.C. Cir. 2010) (SAIC). Such
“[f]alse certifications” are “either express or implied.” Id.12
While we label the claim in this case as “implied
certification,” we note that this label simply recognizes one of
the “variety of ways” in which a claim can be false. Harrison I,
176 F.3d at 786. 3
“Courts infer implied certifications from silence ‘where
certification was a prerequisite to the government action
sought.’” SAIC, 626 F.3d at 1266 (quoting United States ex rel.
Siewick v. Jamison Sci. & Eng’g, Inc., 214 F.3d 1372, 1376 (D.C.
Cir. 2000)). Recognizing that claims can be false when a party
impliedly certifies compliance with a material contractual
condition “gives effect to Congress’ expressly stated purpose
that the FCA should ‘reach all fraudulent attempts to cause the
Government to pay [out] sums of money or to deliver property or
3
The use of “judicially created formal categories” for
false claims is of “relatively recent vintage,” and rigid use of
such labels can “do more to obscure than clarify” the scope of
the FCA. United States ex rel. Hutcheson v. Blackstone Medical,
Inc., 647 F.3d 377, 385 (1st Cir. 2011). Our focus, regardless
of the label used, remains on whether the Government has alleged
a false or fraudulent claim. In Harrison I, we briefly noted the
existence of implied certification claims and, while mentioning
such claims might be “questionable” in the circuit, reserved
ruling on their viability. Harrison I, 176 F.3d at 788 n.8.
Since Harrison I, however, the weight of authority has shifted
significantly in favor of recognizing this category of claims at
least in some instances. See United States ex rel. Wilkins v.
United Health Grp., Inc., 659 F.3d 295, 305-06 (3d Cir. 2011)
(collecting cases from the First, Second, Sixth, Ninth, Tenth,
Eleventh, and D.C. Circuits). For the reasons expressed infra,
we agree that contractual implied certification claims can be
viable under the FCA in the appropriate circumstances.
13
services,’” United States ex rel. Wilkins v. United Health
Group, Inc., 659 F.3d 295, 306 (3d Cir. 2011) (quoting S.Rep.
No. 99–345, at 9 (1986)), a purpose we explicitly recognized in
Harrison I. An example provided by the D.C. Circuit helps
explain the benefits of recognizing this theory:
Consider a company that contracts with the government
to supply gasoline with an octane rating of ninety-one
or higher. The contract provides that the government
will pay the contractor on a monthly basis but nowhere
states that supplying gasoline of the specified octane
is a precondition of payment. Notwithstanding the
contract’s ninety-one octane requirement, the company
knowingly supplies gasoline that has an octane rating
of only eighty-seven and fails to disclose this
discrepancy to the government. The company then
submits pre-printed monthly invoice forms supplied by
the government—forms that ask the contractor to
specify the amount of gasoline supplied during the
month but nowhere require it to certify that the
gasoline is at least ninety-one octane. So long as the
government can show that supplying gasoline at the
specified octane level was a material requirement of
the contract, no one would doubt that the monthly
invoice qualifies as a false claim under the FCA
despite the fact that neither the contract nor the
invoice expressly stated that monthly payments were
conditioned on complying with the required octane
level.
SAIC, 626 F.3d at 1269.
Accordingly, we hold that the Government pleads a false
claim when it alleges that the contractor, with the requisite
scienter, made a request for payment under a contract and
“withheld information about its noncompliance with material
14
contractual requirements.” Id. 4 The “pertinent inquiry” is
“whether, through the act of submitting a claim, a payee
knowingly and falsely implied that it was entitled to payment.”
United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614
F.3d 1163, 1169 (10th Cir. 2010). We appreciate that this theory
“is prone to abuse” by parties seeking “to turn the violation of
minor contractual provisions into an FCA action.” SAIC, 626 F.3d
at 1270. 5 The best manner for continuing to ensure that
4
To that end, we note there are several key distinctions
between this case and what we viewed as garden-variety breaches
of contract in Owens and Wilson. First, this case does not
involve uninjured third parties making claims against their
former employers or contracts under which the Government does
not “express[] dissatisfaction.” To the contrary, the Government
has clearly expressed its displeasure with Triple Canopy’s
actions by prosecuting this action. In addition, this is not a
case involving subjective interpretations of vague contractual
language. In Wilson we noted that the relators “do not claim
that the maintenance provisions . . . set forth anything
resembling a specific maintenance program.” Wilson, 525 F.3d at
377. Absent such specific language, the relators could not prove
an “objective falsehood.” Id. Here, the Government has presented
an objective falsehood—the marksmanship requirement is a
specific, objective, requirement that Triple Canopy’s guards did
not meet.
5
Triple Canopy argues that implied representations can give
rise to liability only when the condition is expressly
designated as a condition for payment. “Of course, nothing in
the statute’s language specifically requires such a rule,” and
we decline to impose Triple Canopy’s proposed requirement. SAIC,
626 F.3d at 1268. In practice, the Government might have a
difficult time proving its case without an express contractual
provision. Because the FCA violations must be “knowing,” the
Government must establish that both the contractor and the
Government understood that the violation of a particular
contractual provision would foreclose payment. In addition,
(Continued)
15
plaintiffs cannot shoehorn a breach of contract claim into an
FCA claim is “strict enforcement of the Act’s materiality and
scienter requirements.” Id.; see also United States ex rel.
Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 388 (1st Cir.
2011) (same). In addition, parties who engage in abusive
litigation remain subject to appropriate sanctions, whether in
the context of the FCA or otherwise.
B.
Applying these standards, we readily conclude that the
Government has sufficiently alleged a false claim for purposes
of Rule 12(b)(6) and Rule 9(b). TO-11 lists the marksmanship
requirement as a “responsibility” Triple Canopy must fulfill
under the contract. The complaint contains an abundance of
allegations that Triple Canopy did not satisfy this requirement
and, instead, undertook a fraudulent scheme that included
falsifying records to obscure its failure. The Government’s
complaint also properly alleges that Triple Canopy’s supervisors
had actual knowledge of the Ugandan guards’ failure to satisfy
because the violation must be material, not every part of a
contract can be assumed, as a matter of law, to provide a
condition of payment. Cf. Mann v. Heckler & Koch Def., Inc., 630
F.3d 338, 346 (4th Cir. 2010) (finding no fraud or FCA violation
even though contractor’s actions “may have violated federal
bidding regulations”).
16
the marksmanship requirement and ordered the scorecards’
falsification.
Turning to materiality, in implied certification cases this
element operates to protect contractors from “onerous and
unforeseen FCA liability as the result of noncompliance with any
of potentially hundreds of legal requirements” in contracts,
because “[p]ayment requests by a contractor who has violated
minor contractual provisions that are merely ancillary to the
parties’ bargain” do not give rise to liability under the FCA.
SAIC, 626 F.3d at 1271. To establish materiality, the Government
must allege the false statement had “a natural tendency to
influence, or be capable of influencing,” the Government’s
decision to pay. 31 U.S.C. § 3729(b)(4). “Express contractual
language may ‘constitute dispositive evidence of materiality,’
but materiality may be established in other ways, ‘such as
through testimony demonstrating that both parties to the
contract understood that payment was conditional on compliance
with the requirement at issue.’” Hutcheson, 647 F.3d at 394(quoting SAIC, 626 F.3d at 1269).
The Government has sufficiently pled materiality under this
standard. First, common sense strongly suggests that the
Government’s decision to pay a contractor for providing base
security in an active combat zone would be influenced by
knowledge that the guards could not, for lack of a better term,
17
shoot straight. In addition, Triple Canopy’s actions in covering
up the guards’ failure to satisfy the marksmanship requirement
suggests its materiality. If Triple Canopy believed that the
marksmanship requirement was immaterial to the Government’s
decision to pay, it was unlikely to orchestrate a scheme to
falsify records on multiple occasions.
Like the hypothetical gasoline supplier, Triple Canopy
agreed to provide a service that met certain objective
requirements, failed to provide that service, and continued to
bill the Government with the knowledge that it was not providing
the contract’s requirements. In addition, Triple Canopy then
endeavored to cover up its failure. Distilled to its essence,
the Government’s claim is that Triple Canopy, a security
contractor with primary responsibility for ensuring the safety
of servicemen and women stationed at an airbase in a combat
zone, knowingly employed guards who were unable to use their
weapons properly and presented claims to the Government for
payment for those unqualified guards. The Court’s admonition
that the FCA reaches “all types of fraud, without qualification”
is simply inconsistent with the district court’s view of the FCA
that Triple Canopy can avoid liability because nothing on the
“face” of the invoice was objectively false. Neifert-White, 390
U.S. at 232.
18
Accordingly, because the Government has sufficiently
alleged that Triple Canopy made a material false statement with
the requisite scienter that resulted in payment, we reverse the
district court’s dismissal of Count I of the Government’s
complaint.
C.
We also reverse the district court’s dismissal of Badr as a
party to this claim. The district court, relying on an out-of-
circuit district court decision, United States ex rel. Feldman
v. City of New York, 808 F.Supp.2d 641 (S.D.N.Y. 2011), held
that Count I of Badr’s complaint, which was “virtually
indistinguishable” from the Government’s, was “superseded” and
“therefore dismissed for lack of standing.” Triple Canopy, 950
F.Supp.2d at 895 n.1. The FCA does provide that, if the
Government elects to participate in a qui tam FCA action, it
“shall have the primary responsibility for prosecuting the
action, and shall not be bound by an act of the person bringing
the action.” 31 U.S.C.A. § 3730(c)(1). However, the FCA further
provides that the relator “shall have the right to continue as a
party to the action,” subject to certain limitations. Id. We
thus conclude that the district court erred in finding that Badr
lacked standing to remain as a party on Count I. On remand, the
district court is free to decide whether any of the limitations
in § 3730(c)(2) apply to Badr.
19
IV.
A.
We next turn to the district court’s dismissal of Count II,
the Government’s false records claim. Section 3729(a)(1)(B)
creates liability when a contractor “knowingly makes, uses, or
causes to be made or used, a false record or statement material
to a false or fraudulent claim.” The district court dismissed
the Government’s false records claim for (1) failing to allege a
false statement and (2) failing to allege that the COR actually
reviewed the falsified scorecards. 6 The district court concluded
the scorecards were not material because the Government failed
to specifically allege that the COR reviewed them. The court’s
conclusion, however, misapprehends the FCA’s materiality
standard.
“[T]he materiality of the false statement turns on whether
the false statement has a natural tendency to influence agency
action or is capable of influencing agency action.” United
States ex rel. Berge v. Bd. of Tr. of Univ. of Ala., 104 F.3d
1453, 1460 (4th Cir. 1997) (internal quotation marks omitted);
see also 31 U.S.C. § 3729(b)(4). Materiality focuses on the
6
Because we have already determined that the Government
adequately pled a false statement, we turn only to the question
of whether the false scorecards themselves were “material” to
the false statement.
20
“potential effect of the false statement when it is made, not on
the actual effect of the false statement when it is discovered.”
Harrison II, 352 F.3d at 916-17 (emphasis added). See also
United States ex rel. Feldman v. Van Gorp, 697 F.3d 78, 96 (2d
Cir. 2012) (holding materiality requirement is objective, not
subjective, and “does not require evidence that a program
officer relied upon the specific falsehoods proven”). In other
words, the FCA reaches government contractors who employ false
records that are capable of influencing a decision, not simply
those who create records that actually do influence the
decision. Thus, in Harrison II, we rejected the sort of “actual
effect” standard used by the district court because a government
contractor could never be held liable under the FCA if the
governmental entity decides that it should continue to fund the
contract, notwithstanding the fact that it knew the contractor
had made a false statement in connection with a claim. Harrison
II, 352 F.3d at 916-17. Along the same lines, a contractor
should not receive a windfall and escape FCA liability if — as
the district court suggested here — a Government employee fails
to catch an otherwise material false statement. That approach
would be doubly deficient: it would inappropriately require
actual reliance on the false record and import a presentment
requirement from § 3729(a)(1)(A) that is not present in §
3729(a)(1)(B). See United States ex rel. DRC, Inc. v. Custer
21
Battles, LLC, 562 F.3d 295, 308 (4th Cir. 2009). In addition,
that approach “does not accomplish one of the primary purposes
of the FCA—policing the integrity of the government’s dealings
with those to whom it pays money.” Harrison II, 352 F.3d at 917.
The FCA is meant to cover “all fraudulent attempts to cause the
Government to pay out sums of money.” Neifert-White, 390 U.S. at
233. The district court thus erred in focusing on the actual
effect of the false statement rather than its potential effect.
A false record may, in the appropriate circumstances, have the
potential to influence the Government’s payment decision even if
the Government ultimately does not review the record.
B.
Applying the proper standard, we find that the Government
has properly pled materiality in Count II. The false records in
this case — the falsified scorecards — are material to the false
statement (the invoices) because they complete the fraud. The
false scorecards make the invoices appear legitimate because, in
the event the COR reviewed the guards’ personnel files, the COR
would conclude that Triple Canopy had complied with the
marksmanship requirement. TO-11’s provisions likewise
anticipated that the COR would indeed review the scorecards, as
they offered the most direct evidence that Triple Canopy’s
guards satisfied the marksmanship requirement. The false
scorecards were thus integral to the false statement and satisfy
22
the materiality standard. We therefore reverse the district
court’s dismissal of Count II of the Government’s complaint. 7
V.
Finally, we address the dismissal of Counts II-V in Badr’s
complaint. Badr alleged in those counts that Triple Canopy
submitted false claims by invoicing the Government for guard
services under four additional contracts: Cobra, Kalsue, Basra,
and Delta. The sum of Badr’s allegations on these counts is as
follows: that the Ugandan guards were “demobilized . . . and
transferred” to the four contracts while still not “qualified to
provide” security services, and that Triple Canopy was “paid by
the U.S. Government under terms similar to those under the Al
Asad Contract.” (J.A. 15). By comparison, in support of his
claim regarding the Al Asad airbase, Badr listed dates,
specified the actions taken on those dates, and identified the
Triple Canopy personnel involved. See, e.g. J.A. at 14 (“Site
Manager D.B. instructed [Badr] to falsely indicate that the men
had obtained scores in the 30-31 range . . . A new Site Manager,
D.B.2., then signed the sheets, falsely post-dating them to
7
Triple Canopy argues in the alternative that the
Government has failed to allege causation. Causation is likely
not required under § 3729(a)(1)(B). See Ahumada, 756 F.3d at 280
n.8. In any event, causation in this situation is no different
than materiality: if the false record had a natural tendency or
was capable of influencing agency action, then the record caused
the false claim.
23
indicate that the Ugandans had qualified in the following month
of June”).
The district court correctly dismissed Counts II-V for
failing to comply with Rule 9(b). Rule 9(b) requires “at a
minimum” that Badr “describe the time, place, and contents of
the false representations,” United States ex rel. Nathan v.
Takeda Pharmaceuticals North America, Inc., 707 F.3d 451, 455-56
(4th Cir. 2013) (internal quotation marks omitted). We agree
with the district court that Badr cannot state a claim by doing
“nothing more than simply presum[ing]” that Triple Canopy
submitted false claims under those contracts. Triple Canopy, 950
F.Supp.2d at 900. Badr contends that discovery may reveal the
contents of the contracts and invoices, but fraud actions that
“rest primarily on facts learned through the costly process of
discovery” are “precisely what Rule 9(b) seeks to prevent.”
Wilson, 525 F.3d at 380. See also Harrison I, 176 F.3d at 789(“The clear intent of Rule 9(b) is to eliminate fraud actions in
which all the facts are learned through discovery after the
complaint is filed.”) (internal quotation marks omitted).
VI.
The FCA is “strong medicine in situations where strong
remedies are needed.” Owens, 612 F.3d at 726. That strong remedy
is needed when, as here, a contractor allegedly engages in a
year-long fraudulent scheme that includes falsifying records in
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personnel files for guards serving as a primary security force
on a United States airbase in Iraq. Accordingly, for the
foregoing reasons, we reverse the district court’s dismissal of
Counts I and II of the Government’s complaint, we affirm the
dismissal of Counts II-V of Badr’s complaint, and we remand for
proceedings consistent with our opinion.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED
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