The FCA’s implied certification theory is based on the concept that every time a payee submits a claim to the government it has impliedly certified compliance with all contractual, statutory, and regulatory obligations, and therefore, is entitled to payment. While the courts are currently divided on whether implied certification is a valid theory of liability, the courts that have endorsed this theory have distinguished between violations that are conditions of participation (where the penalty for a violation could be exclusion from a government program) and conditions of payment (where the penalty would be nonpayment of the claim) and have found that only the latter are actionable under the FCA. These courts have also almost uniformly held that such a violation must be material to the government’s decision to pay the claim. However, “materiality” is an amorphous concept under the FCA and courts have applied different standards and relied upon various sources of evidence in determining whether a payee’s violation was material.
In United States ex rel. Thomas v. Black & Veatch Special Projects Corp., the Tenth Circuit elaborated upon the materiality standard in an implied certification dispute between a government contractor and its former employees. Defendant – an engineering and construction firm – was awarded a government contract to build facilities and distribute electricity in Kandahar, Afghanistan. Pursuant to the contract, defendant was required to obtain visas and work permits from the Afghan government. The relators – former employees of the defendant – discovered copies of forged documents that had been submitted to the Afghan government as part of the defendant’s visa application process. The relators reported their discovery to a supervisor, and two days later provided copies of the forged documents to the OIG.
Shortly thereafter, the defendant met with the OIG to discuss the forged documents, requested copies of all documents it had submitted to the Afghan government, launched an internal investigation to determine who created the forged documents, and had a third-party perform a forensic analysis of its computers. The defendant also kept the OIG updated with any findings. In response, the government never took any adverse action against the defendant and continued to make payments to the defendant in full. In fact, the government amended the contract to provide the defendant with additional work.
In its motion for summary judgment, the defendant argued that the government’s awareness of its violations and subsequent failure to take any adverse action or reduction in payment evidenced that the defendant’s violation of the contract’s visa provisions was nonmaterial, and therefore, it was not liable under the FCA. The district court agreed and granted summary judgment in favor of the defendant.
The Tenth Circuit affirmed, and in doing so provided guidance on the materiality standard. Specifically, the court explained that “an FCA plaintiff may establish materiality by demonstrating that the defendant violated a contractual provision that undercut the purpose of the contract” or if the defendant has only violated minor contractual provision, “by coming forward with evidence indicating that, despite the tangential nature of the violation, it may have persuaded the government not to pay the defendant.” The court quickly dismissed the notion that the submission of forged documents undercut the purpose of the contract. Turning to the latter option, the Tenth Circuit reasoned that because the government had made payment to the defendant (and in fact given the defendant more work), it was evident that the submission of forged documents was not material to the government’s decision to make payment, and therefore, the relators did not have an actionable claim under the FCA. In so holding, the Tenth Circuit also expressly rejected the relators’ argument that the government’s knowledge and actions are irrelevant to the materiality analysis.
Thomas is a useful case for the FCA defense bar as it provides a detailed analysis of the “materiality” requirement and provides further support for the argument that the government’s knowledge of the defendant’s conduct serves as a valid defense to an FCA action.