We have covered the False Claims Act evidentiary standard from a number of different angles. At the pleadings phase of these cases, there is a near 50/50 split between the circuit courts as to the specificity of alleged fraud necessary to overcome a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Also at issue, as described in today’s case United States of America ex rel. Kelly v. Serco, Inc., is the distinction between a true intentional-fraud False Claims Act case and the less-serious breach of contract claim, which requires an inquiry into the subtle difference between background or underlying fraud and the actual submission of false claims to the government.
In the Kelly case, Judge Hayes of the United States District Court for the Southern District of California concluded that background fraud does not give rise to a False Claims Act claim if the actual vouchers for payment do not contain any fraud or deceitful information. This type of misconduct may give rise to liability (or criminal culpability) under a breach of contract claim or similar legal doctrine, but the treble damages provisions of the False Claims Act are expressly reserved for actual submissions of false invoices to the federal government for reimbursement.
The distinction is subtle, but one worth noting.
Judge holds in favor of Serco, noting insufficient evidence of fraud
For the False Claims Act plaintiff, mounting a credible and comprehensive claim under the False Claims Act requires a deliberate and thorough compilation of evidence tending to show fraud – including invoices, internal memos, or witness testimony explaining the fraudulent billing procedures. As the court held in Kelly, allegations of internal fraud or misdeeds within a company doing business with the federal government will generally be insufficient for a finding of liability.
The facts of Kelly are relatively straightforward and involve allegations by a former employee-whistleblower regarding overbilling for labor under a Department of Defense contract for the provision of wireless communication systems for use in U.S. military operations. Under defense contracts, contractors are required to adhere to a specific billing protocol when invoicing for labor, known as the Earned Value Management System. Under EVMS, employees are required to track their time using automated software, as opposed to manually. Allegedly, Serco “haphazardly collected time entries, fraudulently reallocated time among various tasks codes, and failed to track time in an automated system with the task codes that the government required.” (See, Kelly).
The defendant’s argument was centered on the fact that the federal government never overpaid for anything when the actual value of the defense contract is taken as a whole. More specifically, the court summarized the defendant’s contentions as follows: “Defendant asserts that Relator does not identify problems with the total dollars billed to the government. Defendant further asserts that it made no implied or express certification, as a condition of payment, that it was complying with [the requirement to use EVMS]. Defendant contends that Plaintiff’s ‘allegations’ at best establish nothing more than a regulatory violation, which does not give rise to FCA liability.” Moreover, the defendant asserted that “there is no evidence that, ‘had the payments been broken down in the method [Relator] asserts was required, the government would have paid any more or less to Serco.”
The court sided with the defendants, holding that the evidence of fraud was just not sufficient enough to allow the case to progress to discovery. Specifically, it pointed to a lack of any contract provision requiring Serco to use EVMS as a condition for payment. The Court further held that “Relator has not carried his burden to come forward with evidence demonstrating that the public vouchers Defendant submitted for payment contained anything false or inaccurate, or demonstrating an implicitly false certification of compliance with [the requirement to use EVMS] in those vouchers.”
Contact Berger Montague today
If you are considering a False Claims Act case and would like to discuss your evidence, we encourage you to contact our office right away to speak with an experienced whistleblower attorney.