Contractor fraud is an unfortunately common type of False Claims Act litigation, and it is not unheard of for a government contractor to rip off American taxpayers for hundreds of millions of dollars – particularly in the defense sector. However, not all acts of alleged misconduct are actionable under the False Claims Act, and some errors or breaches are considered mere accident. Under the False Claims Act, a liable defendant must actually intend to or recklessly defraud taxpayers. Accidentally or negligently breaching the terms of a GSA schedule contract only amounts to a simple breach of contract claim.
In today’s case, the U.S. Court of Appeals for the D.C. Circuit upheld the lower court’s decision to dismiss a False Claims Act case for this very reason – the defendant, while in error, did not intentionally or recklessly defraud the government.
Details of the case against GovPlace
The defendant in the case, GovPlace, is a government contractor responsible for supplying computer and information technology products and services to various government agencies. The terms of the agreement between GovPlace and the government are directed by the tenets of the Trade Agreements Act. The TAA, among many other requirements, mandates that “only U.S.-made or designated country end products [can] be offered and sold.” Allegedly, one of GovPlace’s contractors, Ingram Micro, regularly supplied the former with computer parts and components which it certified were derived from TAA-compliant nations.
After further investigation into the matter, the whistleblower in the case uncovered that Ingram Micro was deriving many of its products from China in violation of the terms of the TAA. The whistleblower thereafter commenced a claim against GovPlace under the False Claims Act, claiming it intentionally defrauded the government by supplying IT products in violation of its GSA schedule contract. More specifically, the relator alleged that GovPlace acted with a reckless disregard of whether Ingram Micro’s products were TAA-compliant, thereby triggering exposure to liability under the False Claims Act.
The D.C. Circuit dismisses the complaint
The D.C. Circuit upheld the dismissal of the lawsuit on the grounds that GovPlace did not act with the requisite intent to commit a violation of the False Claims Act. In order to meet the intent requirement, the relator must adequately prove that the defendant acted “knowingly,” “in deliberate ignorance,” or “in reckless disregard” of Ingram Micro’s assertions that its products were in compliance. The trial court concluded that GovPlace did not have this intent, and had no reason to doubt the validity of Ingram Micro’s certifications. The relator offered two pieces of evidence to show GovPlace was unreasonable in relying in Ingram Micro’s assertions, including (i) an email to GovPlace from one of its manufacturers highlighting the possibility of possible foreign products (which was received after the sale to the government); and (ii) an invoice from Ingram Micro to GovPlace purporting to contain discrepancies as to the origination of several computer parts and components, which the plaintiff could not prove was ever read by GovPlace.
Despite its best efforts, the Court rejected both pieces of evidence, holding that neither contained the proverbial “smoking gun” to show that GovPlace knew or should have known that the components were not-conforming. The court went on to hold that a “contractor like GovPlace is ordinarily entitled to rely on a supplier’s certification that [a] product meets TAA guidelines.” Further, the court noted that GovPlace took the extra step to require Ingram Micro to provide letters of certification through a program known as the “GSA Pass Through Program,” which creates an addition layer of scrutiny for government contractors to ensure all products are compliant.
In sum, the court concluded that it was reasonable for GovPlace to rely on the assertions by Ingram Micro, and it did not commit any conduct rising to the level of intent necessary to hold a defendant liable under the False Claims Act.
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