Fifth Circuit Affirms Timeliness of AKA Claims Added to Government’s FCA Complaint in InterventionFebruary 27, 2017 – Articles
In United States ex rel Vavra v. Kellogg Brown & Root, Inc., 2017 U.S. App. LEXIS 2049, Case No. 15-41623 (5th Cir. Feb. 3, 2017), the Fifth Circuit affirmed the timeliness of Anti-Kickback Act1 (AKA) claims first brought in the government’s complaint in intervention over six years after relators filed their qui tam False Claims Act (FCA) action. By holding that the FCA’s “relation back” provision covers non-FCA theories of liability, the court’s decision opens the door for the government to introduce entirely new theories of liability that would otherwise be time-barred in its complaint in intervention, which it often files many years after the original qui tam complaint. Consequently, companies facing a qui tam complaint should investigate alternate statutory and common law theories of liability that the government could assert in a complaint in intervention when evaluating potential liability.
The majority of the court’s opinion addresses the liability of corporations under § 8706(a)(1) of the AKA “for the knowing violations of those employees whose authority, responsibility, or managerial role within the corporation is such that their knowledge is imputable to the corporation.” The court found that, of the two employees who had accepted kickbacks from a subcontractor in the form of meals and other entertainment, only one had “sufficient authority to impute his knowledge to KBR,” because he supervised the subcontract in evaluation of contract performance and participated in the evaluation of its re-bid with “significant managerial authority.” The other employee had only “limited authority” over the subcontract in its initial award, with no further involvement in its performance, and therefore, the government could not impute his knowledge to KBR. The court further found adequate proof of a connection between the described gratuities and favorable treatment as required under the AKA’s definition of “kickback:” any “money, fee, commission, credit, gift, gratuity, thing of value or compensation of any kind” provided to a contractor or subcontractor employee “to improperly obtain or reward favorable treatment” in relation to the government contract or subcontract. According to the court, a subcontractor employee’s testimony that he provided things of value to KBR employees because KBR “would bring service issues to us,” connected “the gratuity with the specific kind of treatment sought in a way that establishes impropriety.”
The court also ruled on the government’s ability to use the FCA’s relation back provision to add non-FCA claims. Here, the relator’s complaint—filed in 2004—put the government on notice of potential AKA violations that occurred beginning in 2002. The government did not assert claims under the AKA until August 2010. Normally, such claims would be untimely because the AKA’s statute of limitations requires that a civil action be brought within six years after the “government first knew or should have reasonably have known that the prohibited conduct occurred.” 41 U.S.C. § 8706(b)(2). The court acknowledged the government should reasonably have known that prohibited conduct occurred as early as January 2004, at the time relators filed their qui tam action, but agreed with the district court that the AKA claims were timely under the FCA because the kickback allegations related back to the original qui tam complaint under the FCA’s relation back provision.
The parties’ arguments focused on the meaning of the word “claims,” which appears twice in the FCA. The relevant provision, 31 U.S.C. § 3731(c), allows the government to intervene and “to clarify or add detail to the claims in which the government is intervening and to add any additional claims with respect to which the government contends it is entitled to relief…[.]” KBR argued—and the court agreed—that the first instance of “claims” in the statute unambiguously refers to FCA claims, because those are the only claims in which the government can intervene. KBR argued that the court must ensure consistency by applying that meaning to the second instance of “claims,” thereby prohibiting the government from using the relation back provision to add non-FCA claims. The court disagreed, holding that the surrounding language—specifically, the modifier “any additional” claims—indicated that Congress intended “claims” to mean two different things. Accordingly, the court held that the government may add any claim under any statute so long as, consistent with federal rule of Civil Procedure 15, the additional claim “arises out of the conduct, transactions, or occurrences” described in the initial complaint. KBR further argued that relation back was impossible in this case because the government had abandoned its FCA claims in 2012. The court again disagreed and noted that the government “did proceed with the FCA claims when it intervened and filed its complaint in August 2010.” Thus, the inadequacy of the FCA claims ultimately led the government to dismiss them but not before the government expanded KBR’s liability by adding claims brought under the AKA that related back to the FCA claims it then decided to dismiss.
The Vavra decision allows the government to use a qui tam case to substitute other theories of liability that would otherwise be time-barred. Vavra’s impact could be particularly acute for companies facing allegations implicating a claim under the AKA. DOJ has argued that it can recover under the FCA and the AKA for the same conduct, which effectively results in quintuple damages. Because the AKA provides for civil penalties—not damages—the government contends it can recover both treble damages under the FCA and double penalties under the AKA for the same conduct without running afoul of the prohibition against double recovery. See Morse Diesel Intern., Inc. v. U.S., 79 Fed. Cl. 116 (2007). Companies facing a qui tam complaint and potential liability under the AKA should take these arguments into consideration when assessing the value of the case.
1 The AKA imposes criminal and civil liability on any person who offers, solicits, or attempts to offer or solicit a kickback. 41 U.S.C. § 8702. The AKA imposes a civil penalty of double the amount of the kickback for “knowing” violations and permits the government to recover a civil penalty in the amount of the kickback from a company “whose employee, subcontractor, or subcontractor” violates the AKA. 41 U.S.C. § 8706(a).