Employee’s FCA claim fails under implied false certification theory

By Joy Waltemath

By Ronald Miller, J.D.

An employee’s attempt to establish that an employer violated the False Claims Act by submitting false or fraudulent claims for payment under an implied false certification theory of liability failed as a matter of law, ruled the Ninth Circuit in affirming a district court’s grant of summary judgment. Applying the Supreme Court’s decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar, the appeals court concluded that what mattered was whether the employer knowingly violated a requirement that it knew was material to the government’s payment decision. Here, the court concluded that the employee did not satisfy the standard of materiality set forth in Escobar because there was no genuine issue of material fact as to the materiality of the employer’s compliance with its obligation to provide valid reports (U.S. ex rel. Kelly v. Serco, Inc., January 12, 2017, Tallman, R.).

Project contract. In 2007, the employer was awarded a $62 million, three-year contract by the Department of Defense (DoD) to provide project management, engineering design, and installation support services for a range of government projects. The contract was a type that “provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period.” In 2008, the Department of Homeland Security (DHS) entered into an interagency contract with the DoD to upgrade the wireless communications systems situated along the United States-Mexico border. The DoD subcontracted with the employer to purchase the necessary equipment, perform non-construction upgrades, and provide project management services for the project. These services were covered under the employer’s contract with the DoD.

Report of cost overruns. The employee was hired in 2009 as an analyst to monitor the employer’s performance on the project and identify any cost or schedule overruns. In April 2011, he informed DHS that the employer’s monthly cost reports were unreliable because they tracked costs manually and with a single charge code in violation of the guidelines in the American National Standards Institute/Electronic Industries Alliance Standard 748 (ANSI-748). He also informed DHS that the employer was falsifying its monthly reports to make its actual costs match the expected budget for the project. That same month, DHS and DoD determined that the reports were no longer necessary or cost-justified for the project. As a result, the employer was directed to reduce the number of analysts working on the project. Unaware of the employee’s recent report to the DHS, the employee was terminated in May 2011.

The employee brought a qui tam action under the False Claims Act (FCA), alleging that the employer submitted fraudulent claims for payment for work done under a government contract. He also asserted claims for wrongful termination under California law. The district court granted summary judgment in favor of the employer on all of the employee’s claims. This appeal followed.

Implied false certification theory of liability. The employee’s principal contention on appeal was that the district court erroneously granted summary judgment on his FCA claim alleging that the employer submitted false or fraudulent claims for payment under an implied false certification theory of liability. Under the implied false certification theory advanced by the employee, the employer’s act of submitting a claim for payment “impliedly certifies compliance with all conditions of payment.” Based on Escobar, the appeals court analyzed whether any statute, regulation, or contractual provision conditioned the employer’s right to payment on its compliance with ANSI-748.

In Escobar, the Supreme Court rejected the contention that a government contract or regulation must expressly designate a requirement as a condition of payment in order to trigger liability under the theory of implied certification. The Court further held that “the implied certification theory can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

Here, the employee argued that the employer’s compliance with ANSI-748 was an implied condition of its right to payment because the delivery orders required the employer to deliver certain reports. However, the Ninth Circuit concluded that the employee’s implied false certification claim failed as a matter of law. First, there was no evidence that the employer’s public vouchers made any specific representations about its performance. Second, there was no evidence that the employer’s public vouchers contained any false or inaccurate statements. “[A] misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the False Claims Act.”

For the employee to prevail on his implied false certification theory, he must satisfy the “rigorous” and “demanding” standard for materiality set forth in Escobar. He failed to do so. His remaining FCA claims also failed as a matter of law. Accordingly, the Ninth Circuit affirmed the judgment of the district court granting summary judgment to the employer.

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