U.S. v. Sci. Applications Intern. Corp.

• Citation: 393 U.S.App.D.C. 223,626 F.3d 1257
• Decision Date: 03 December 2010
• Docket Number: No. 09-5385,09-5385
• Parties: UNITED STATES of America, Appellee v. SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

626 F.3d 1257 393 U.S.App.D.C. 223 UNITED STATES of America, Appellee v. SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, Appellant. No. 09-5385. United States Court of Appeals, District of Columbia Circuit. Argued Sept. 21, 2010. Decided Dec. 3, 2010.

Appeal from the United States District Court for the District of Columbia, (No. 1:04-cv-01543).

Theodore B. Olson argued the cause for appellant. With him on the briefs were Matthew D. McGill, Amir C. Tayrani, Ryan J. Watson, Richard O. Duvall, Jennifer A. Short, Lawrence E. Ruggiero, and John P. Rowley III.

Robin S. Conrad, Amar D. Sarwal, James J. Gallagher, and Susan A. Mitchell were on the brief of amicus curiae the Chamber of Commerce of the United States of America in support of appellant.

Jessie K. Liu, David A. Churchill, and Matthew E. Price were on the brief of amicus curiae the National Defense Industrial Association in support of appellant.

Thomas M. Bondy, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief were Ronald C. Machen Jr., U.S. Attorney, and Douglas N. Letter, Attorney. R. Craig Lawrence, Assistant U.S. Attorney, entered an appearance.

Before: SENTELLE, Chief Judge, TATEL and GRIFFITH, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

In this case a jury found, among other things, that appellant, a major government contractor, violated the False Claims Act (FCA), 31 U.S.C. § 3729, by seeking payments at the same time it knew it was violating contractual provisions governing potential conflicts of interest. On appeal, the contractor principally argues that no liability may attach for its claims for payment because its contract nowhere designated compliance with these conflict of interest requirements as express conditions of payment. As we explain in this opinion, however, requests for payment can be "false or fraudulent" under the FCA when submitted by a contractor that has violated contractual requirements material to the government's decision to pay regardless of whether the contract expressly designates those requirements as conditions of payment. We nonetheless vacate the judgment as to FCA liability and remand for a new trial because the district court's "collective knowledge" instruction conflicted with the FCA's scienter standard, the proper application of which is critical to ensuring that FCA liability attaches only for false or fraudulent claims and not for accidental or even negligent breaches of contract.

I.

The Nuclear Regulatory Commission (NRC) is an independent federal agency that regulates the civilian use of nuclear materials. Pursuant to its general authority, the NRC oversees the release into interstate commerce of commercially valuable recycled radioactively contaminated materials from nuclear facilities. Companies wishing to release such materials must obtain an NRC license and comply with license restrictions. Beginning in the mid-1980s, however, the NRC sought to establish standards for unrestricted release by setting contamination levels that were below "regulatory concern." Am. Compl. ¶ 11. After the NRC's initial efforts encountered Congressional and public opposition, the agency commenced new studies aimed at developing scientific criteria that could inform a future rulemaking to set uniform national standards on the recycling and release of radioactive materials.

Appellant Science Applications International Corporation (SAIC), a scientific, engineering, and technology applications company, entered into a contract with the NRC in 1992 to provide technical assistance and expert analysis to support the agency's potential rulemaking. SAIC performed multiple tasks under the contract, delivering several reports, including both a literature review and a regulatory options paper that the NRC published in 1999. In the options paper, SAIC calculated radiological dose assessment estimates for materials recycled and released from nuclearfacilities. In 1999, SAIC and the NRC executed a follow-on contract to allow the company to continue its work in support of the agency's rulemaking.

The 1992 and 1999 contracts included several provisions designed to identify and prevent potential conflicts of interest. Because the two contracts are substantially identical for all purposes relevant to this litigation, we shall refer only to the 1992 contract. SAIC's contract imposed limitations on the company's ability to "work for others" during the contract term. Specifically, SAIC agreed to "forego entering into consulting or other contractual arrangements with any firm or organization, the result of which may give rise to a conflict of interest with respect to the work being performed under [the] contract." If SAIC had "reason to believe with respect to itself or any employee that any proposed consultant or other contractual arrangement with any firm or organization may involve a potential conflict of interest," the contract obliged SAIC to obtain the NRC's prior written approval. The contract also included disclosure obligations that required SAIC to "warrant[ ] to the best of its knowledge and belief" that it had no "organizational conflicts of interest" and would make "an immediate and full disclosure in writing" if it discovered such conflicts after the contract award. In the event SAIC disclosed a conflict, the contract required it to provide a mitigation strategy, but the NRC retained the right to terminate the contract if doing so was "in the best interest of the government." The contract defined organizational conflicts of interest by reference to NRC regulations, which in turn defined an organizational conflict of interest as follows:

a relationship ... whereby a contractor or prospective contractor has present or planned interests related to the work to be performed under an NRC contract which: (1) May diminish its capacity to give impartial, technically sound, objective assistance and advice or may otherwise result in a biased work product, or (2) may result in its being given an unfair advantage.

41 C.F.R. § 20-1.5402(a) (1979).

In addition, the contract required SAIC to make several "representations" and "certifications." SAIC certified that its contract award resulted in none of the "situations or relationships" outlined in 41 C.F.R. § 20-1.5403(b) (1979). That regulation, now codified at 48 C.F.R. § 2009.570-3(b), lists the following situations or relationships that give rise to conflicts:

(i) Where the ... contractor provides advice and recommendation to the NRC in a technical area in which it is also providing consulting assistance in the same area to any organization regulated by the NRC.

(ii) Where the ... contractor provides advice to the NRC on the same or similar matter on which it is also providing assistance to any organization regulated by the NRC.

....

(iv) Where the award of a contract would otherwise result in placing the ... contractor in a conflicting role in which its judgment may be biased in relation to its work for the NRC, or would result in an unfair competitive advantage....

The contract also provided that "[t]he nondisclosure or misrepresentation of any relevant interest may ... result in the disqualification of the [contractor] for awards[,] or if nondisclosure or misrepresentation is discovered after the award, the resulting contract may be terminated."

During the term of the 1992 contract, SAIC and the NRC agreed to several modifications, and each time the company certified that the modification involvednone of the above situations or relationships. SAIC repeated this certification in the 1999 contract. Critical to the issue before us, the preprinted payment vouchers that the NRC required SAIC to submit for work performed under the contracts contained no express certifications, nor did anything in either contract expressly condition payment on such a certification.

At an open NRC meeting in October 1999, a member of the public charged that SAIC was involved in projects with for-profit companies that potentially created prohibited organizational conflicts of interest with respect to SAIC's NRC work. Responding to this allegation, the NRC asked SAIC to provide information about the company's other work in the area of nuclear recycling. Based on SAIC's disclosure of its existing contracts with two companies—British Nuclear Fuels, Ltd. ("British Nuclear") and the Bechtel Jacobs Company ("Bechtel Jacobs")—the NRC determined that SAIC had, without proper disclosure, placed itself in potentially conflicting roles. The NRC informed SAIC of this determination and ordered the company to stop working on the 1999 contract. The parties subsequently entered into a no-cost settlement terminating that contract.

The United States brought suit against SAIC, raising two claims under the False Claims Act. First, the government charged SAIC with knowingly submitting false or fraudulent claims for payment in violation of 31 U.S.C. § 3729(a)(1) by continuing to submit payment invoices after the conflicting relationships arose. Second, the government alleged that SAIC knowingly made false statements to get false or fraudulent claims paid or approved in violation of 31 U.S.C. § 3729(a)(2) when the company certified to the NRC not only that it had no organizational conflict of interest relationships, but also that it would immediately inform the NRC if such relationships developed. The government also brought a claim for breach of the 1992 contract.

The government's FCA causes of action focused on SAIC's business relationships with contractors participating in a project to decommission and decontaminate buildings at a Department of Energy (DOE) site in Oak Ridge, Tennessee. DOE contracted with British Nuclear in 1997 to work on this project, and British Nuclear then engaged SAIC to serve as a subcontractor. Although work performed at DOE's facilities was subject only to DOE oversight, the government argued that SAIC's relationship with British...