United States v. Triple Canopy, Inc.

• Decision Date: 16 May 2017
• Docket Number: No. 13-2191,No. 13-2190,13-2190
• Citation: 857 F.3d 174
• Parties: UNITED STATES of America, Intervenor/Plaintiff–Appellant, and United States ex rel. Omar Badr, Plaintiff, v. TRIPLE CANOPY, INC., Defendant–Appellee. United States ex rel. Omar Badr, Plaintiff–Appellant, v. Triple Canopy, Inc., Defendant–Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

857 F.3d 174

UNITED STATES of America, Intervenor/Plaintiff–Appellant,

and

United States ex rel. Omar Badr, Plaintiff,

v.TRIPLE CANOPY, INC., Defendant–Appellee.

United States ex rel. Omar Badr, Plaintiff–Appellant,

v.Triple Canopy, Inc., Defendant–Appellee.

No. 13-2190

No. 13-2191

United States Court of Appeals, Fourth Circuit.

Argued: January 26, 2017

Decided: May 16, 2017

ARGUED: Charles W. Scarborough, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Earl N. Mayfield, III, DAY & JOHNS, PLLC, Fairfax, Virginia, for Appellants. Tara Melissa Lee, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C., for Appellee. ON BRIEF: Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Joyce R. Branda, Acting Assistant Attorney General, Stuart F. Delery, Assistant Attorney General, Michael S. Raab, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Dana J. Boente, United States Attorney, Richard W. Sponseller, Peter S. Hyun, Gerard Mene, Christine Roushdy, Assistant United States Attorneys, OFFICE OF THE UNITED STATES ATTORNEY, Alexandria, Virginia, for Appellant United States of America. Paul A. Prados, Milt C. Johns, Christopher M. Day, DAY & JOHNS, PLLC, Fairfax, Virginia, for Appellant Omar Badr. Joseph C. Davis, Reston, Virginia; Paul D. Schmitt, DLA PIPER LLP (US), Washington, D.C.; Jonathan G. Cooper, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C., for Appellee.

Before SHEDD, AGEE, and WYNN, Circuit Judges.

Affirmed in part, reversed in part, and remanded by published opinion. Judge Shedd wrote the opinion, in which Judge Agee and Judge Wynn joined.

SHEDD, Circuit Judge:

On remand from the United States Supreme Court, we are asked to consider whether the Government stated a claim under the False Claims Act (FCA), 31 U.S.C. § 3729(a) against Triple Canopy, Inc. Applying Universal Health Services, Inc. v. United States ex rel. Escobar , ––– U.S. ––––, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016), we conclude that the Government properly alleged an FCA claim.

I.

The facts and procedural history are recounted in detail in our earlier opinion. See United States ex rel. Badr v. Triple Canopy, Inc. , 775 F.3d 628, 632-33 (4th Cir. 2015). In brief, the Government awarded Triple Canopy a one-year contract to provide security services at Al Asad Airbase in Iraq. As part of that contract, Triple Canopy was required to meet certain "responsibilities," including "ensur[ing] that all employees have ... qualified on a U.S. Army qualification course." (J.A. 99). According to the relator, Omar Badr, Triple Canopy brought in guards from Uganda who were unable to meet this marksmanship requirement. Rather than inform the Government of this deficiency, Triple Canopy falsified the scorecards on several occasions throughout the year. Triple Canopy submitted invoices for its guards on a monthly basis but was not required to certify that its guard services complied with the contract's responsibilities.

Badr brought an action against Triple Canopy under 31 U.S.C. §§ 3729 & 3730. The Government intervened and filed a two-count complaint, alleging, inter alia , that Triple Canopy knowingly presented false claims, in violation of 31 U.S.C. § 3729(a)(1)(A) because it "billed the Government for the full price for each and every one of its unqualified security guards." (J.A. 24). The district court granted Triple Canopy's motion to dismiss. United States ex rel. Badr v. Triple Canopy, Inc. , 950 F.Supp.2d 888 (E.D. Va. 2013). In doing so, the court "decline[d] recognition of an implied certification theory of liability."¹ Id. at 899.

We reversed in relevant part, concluding that the implied certification theory was valid in certain circumstances: "we hold that the Government pleads a false claim when it alleges that the contractor, with the requisite scienter, made a request for payment under a contract and withheld information about its noncompliance with material contractual requirements." 775 F.3d at 636 (internal quotation marks omitted). To guard against the potential for abuse, we required "strict enforcement of the Act's materiality and scienter requirements." Id. at 637 (internal quotation marks omitted).

Applying this standard, we found that the Government successfully stated a claim because it alleged that Triple Canopy made a material falsehood. On falsity, we explained that the marksmanship requirement was a contractual responsibility that Triple Canopy failed to satisfy, instead undertaking "a fraudulent scheme ... to obscure its failure." Id. We also rejected Triple Canopy's argument that implied representations could only give rise to liability if payment was conditioned on compliance with the requirement because "nothing in the statute's language specifically requires such a rule." Id. at 637 n. 5 (internal quotation marks omitted). We also found that the Government properly pled materiality:

[C]ommon sense strongly suggests that the Government's decision to pay a contractor for providing base security in an active combat zone would be influenced by knowledge that the guards could not, for lack of a better term, shoot straight.

Id. at 637-38. We noted that Triple Canopy's own elaborate cover-up suggested that the contractor realized the materiality of the marksmanship requirement.

After issuing our decision, the Supreme Court granted certiorari in Universal Health to resolve a circuit split on whether and to what extent the implied certification theory is valid under the FCA. The Court first held that "at least in certain circumstances," the theory "can be a basis for liability." Universal Health, 136 S.Ct. at 1995. Thus, a contractor can be liable under the FCA "when [it] submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant's noncompliance with a statutory, regulatory, or contractual requirement." Id . In addition, the Court held that liability "does not turn upon whether those requirements were expressly designated as conditions of payment" because "[w]hat matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government's payment decision." Id. at 1996. Abuse of the theory, the Court cautioned, should be cabined by the "rigorous materiality requirement." Id.

The Court next fleshed out how to apply the "demanding" materiality standard. Id. at 2003. As the Court summarized:

A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant's noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial.

Id.

In so ruling, the Court rejected the Government's more expansive argument that a misrepresentation was material so long as the contractor knew that the Government would be entitled to refuse payment. The Court referred to the Government's hypothetical wherein a contractor provides health services but violates a requirement that all contractors must use American-made staplers. "The False Claims Act," the Court emphasized, "does not adopt such an extraordinarily expansive view of liability." Id. at 2004. Instead, the Court suggested that proof of materiality could include "evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on [similar] noncompliance." Id. at 2003.

After issuing its decision in Universal Health , the Court granted certiorari in our case, vacated our earlier opinion, and remanded the case for further consideration. Triple Canopy, Inc. v. United States ex rel. Badr , ––– U.S. ––––, 136 S.Ct. 2504, 195 L.Ed.2d 836 (2016). On remand, we ordered the parties to brief and argue the impact of Universal Health on our earlier panel decision.

II.

Our task is straightforward: we must determine whether Universal Health alters our earlier conclusion that the Government stated a claim under § 3729(a)(1)(A).² The fact that the Supreme Court vacated our earlier opinion does not impact our ultimate conclusion; that action is not a decision on the merits, and we remain free to "enter the same judgment." Vazquez-Valentin v. Santiago-Diaz , 459 F.3d 144, 148 (1st Cir. 2006). Applying Universal Health , we readily conclude that it does not alter our earlier panel decision and, accordingly, we again reverse the district court's dismissal of the Government's complaint and remand for further proceedings.

Universal Health made two rulings relevant here. First, the Court held (as we did in our earlier panel decision) that the implied certification theory of liability is valid in certain circumstances. Second, the Court counseled that concerns about abuse of the theory should be addressed by employing a rigorous materiality requirement. Triple Canopy argues that, under Universal Health , the Government's complaint falls short of alleging both falsity and materiality. We disagree.

Regarding falsity, Triple Canopy argues that Universal Health adopted a much narrower view of falsity than we did and that, applying the Court's test, the Government failed to state a claim. Universal Health requires the Government to show that a contractor "makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant's noncompliance with a statutory, regulatory, or contractual requirement." Universal Health , 136 S.Ct. at 1995. Triple Canopy contends that, in Universal Health , that standard was satisfied because when the contractor billed Medicare, it chose specific billing codes for services, thus making a "specific representation" about the services provided. Here, in contrast, Triple Canopy argues that it...