United States ex rel. Purcell v. MWI Corp.

• Decision Date: 24 November 2015
• Docket Number: Nos. 14–5210,14–5218.,s. 14–5210
• Citation: 807 F.3d 281
• Parties: UNITED STATES of America ex rel. Robert R. PURCELL, Appellant/Cross–Appellee Robert R. Purcell, Cross–Appellee v. MWI CORPORATION, Appellee/Cross–Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

807 F.3d 281

UNITED STATES of America ex rel. Robert R. PURCELL, Appellant/Cross–AppelleeRobert R. Purcell, Cross–Appellee

v.MWI CORPORATION, Appellee/Cross–Appellant.

Nos. 14–5210

14–5218.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 17, 2015.

Decided Nov. 24, 2015.

Melissa N. Patterson, Attorney, U.S. Department of Justice, argued the cause for appellant/cross-appellee United States of America. With her on the briefs were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Vincent H. Cohen, Jr., Acting U.S. Attorney, and Michael S. Raab, Attorney. R. Craig Lawrence, Assistant U.S. Attorney, entered an appearance.

Brian Tully McLaughlin and Robert T. Rhoad argued the causes for appellee/cross-appellant MWI Corporation. With them on the brief were Charlotte E. Gillingham and Jason C. Lynch.

Joseph J. Aronica argued the cause and filed the brief for cross-appellee Robert R. Purcell.

Douglas W. Baruch and Jennifer M. Wollenberg were on the brief for amicus curiae National Association of Manufacturers in support of defendant-appellee/cross-appellant in support of reversal of the decisions finding liability under the False Claims Act.

Before: ROGERS, BROWN and KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

The United States successfully brought a civil action pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729, based on certifications by MWI Corp. to the Export–Import Bank ("the Bank") to secure loans financing MWI's sale of water pumps to Nigeria. Although the total loan of $74.3 million was to Nigeria, the Bank required MWI to certify that it had paid only "regular commissions" to the sales agent responsible for the sales contract. A jury found the certifications were false and awarded the government $7.5 million in damages. The damages were trebled to $22.5 million pursuant to the FCA. Because an FCA defendant is entitled to an offset from the trebled damages by any amount paid to compensate the government for the harm caused by the false claims, see United States v. Bornstein, 423 U.S. 303, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976), and the district court considered Nigeria's repayment of the loan to be compensatory, MWI's damages were reduced from $22.5 million to $0. MWI thus was subject only to civil penalties, which the district court imposed at the highest level permitted by the statute, $10,000 for each of the 58 certifications.

The government, having recovered no damages, appeals. It contends the district court should have applied only $7.5 million of Nigeria's loan repayment as an offset against MWI's $22.5 million in trebled damages, because, according to the government, the offset applies against the amount of damages before trebling, not against the trebled damages, and so it is still entitled to recover $15 million in damages. MWI cross appeals on the principal ground that the government failed as a matter of law to establish that it made a false claim or that it had done so knowingly, both of which are required to establish FCA liability.

Because the government failed to establish that MWI knowingly made a false claim, we reverse. At the time MWI made the certifications, the government had yet to inform exporters that, contrary to MWI's understanding of "regular commissions," the term refers to what is normally paid in the industry, and not what an exporter had historically paid to an individual sales agent. Absent evidence that the Bank, or other government entity, had officially warned MWI away from its otherwise facially reasonable interpretation of that undefined and ambiguous term, the FCA's objective knowledge standard, as the Supreme Court clarified while this litigation was pending in Safeco Insurance Co. of America v. Burr, 551 U.S. 47, 69–70 & n. 20, 127 S.Ct. 2201, 167 L.Ed.2d 1045 (2007), did not permit a jury to find that MWI "knowingly" made a false claim.

I.

The following facts are undisputed. In 1992, MWI agreed to sell $82.2 million in irrigation pumps and related equipment to seven states in Nigeria. To facilitate the sales, the parties sought financing from the Bank, which finances and facilitates export of U.S. goods and services by providing loans to foreign purchasers, thereby "contribut[ing] to the employment of United States workers." 12 U.S.C. § 635(a)(1). The Bank agreed to lend Nigeria $74.3 million in eight separate loans. Prior to approving the loans, the Bank had required MWI to submit a "Letter of Credit Supplier's Certificate" in which MWI certified that it had not paid "any discount, allowance, rebate, commission, fee or other payment in connection with the sale" except "[r]egular commissions or fees paid or to be paid in the ordinary course of business to [its] regular sales agents." (Emphasis added). Similarly, before it would disburse funds, the Bank required MWI to make an identical certification. Altogether, MWI certified in fifty-eight documents that it had paid only "regular commissions" in connection with the water pump sales.

In 1998, a former MWI employee, Robert Purcell, filed on behalf of the government the FCA complaint on which this lawsuit is based. Purcell, relator here, alleged that non-regular commissions had been paid, pointing to $28 million in commissions—over 30% of the loan amount—that MWI had paid to its long-term (over twelve years) Nigerian sales agent, Alhaji Indimi. He alleged those commissions were so great that MWI should have disclosed them to the Bank as payments other than "regular commissions."

In 2002, the United States intervened and filed an amended complaint stating two FCA claims and two common law claims. See 31 U.S.C. § 3730(b)(2). (The common law claims were subsequently dropped.) Focusing on the unreported commissions, the government alleged that MWI both knowingly submitted false claims for payment or approval in violation of 31 U.S.C. § 3729(a)(1), and knowingly made false statements to obtain a false or fraudulent claim in violation of 31 U.S.C. § 3729(a)(2). The parties filed cross motions for summary judgment.

The district court denied MWI's motion and granted the government's motion in part. United States ex rel. Purcell v. MWI Corp. (MWI I ), 520 F.Supp.2d 158, 181 (D.D.C.2007). MWI argued that the unsettled meaning of the ambiguous term "regular commissions" precluded, as a matter of law, the government from establishing the elements of falsity and knowledge. The district court acknowledged that the Bank had not issued written guidance on the meaning of the term and that "the contours of [the Bank's] interpretation remained unclear until the parties deposed [Bank] officials and related their findings to the court in the instant motions." Id. at 175–76. Further, it agreed that the undefined, ambiguous term could support MWI's understanding that a commission is "regular" if it is consistent with what had historically been paid to an individual agent. Id. at 175–77. Nonetheless, the district court accepted the meaning the government proposed in its summary judgment briefing: a commission is "regular" only if it is consistent with industry-wide benchmarks. Id. at 175–78. This definition was based on the implicit understanding Bank employees had about the meaning of the term. In view of the amount of the commissions at issue, the district court concluded that the term "regular commissions" was not so ambiguous that MWI had not been on notice that, in the government's view, the term "might imply an industry-wide rather than an intra-firm or (as the defendants quite implausibly propose) an individual-agent standard." Id. at 176. To the extent that there was a "nimbus of uncertainty" that "may linger around commissions that lie at the fringes of industry-wide benchmarks," the district court suggested that MWI ought to have "assumed the featherweight onus of disclosing any questionable commissions." Id. at 177.

Having accepted the government's definition for "regular commissions," the district court left to the jury the question whether MWI knowingly made a false claim. See id. at 177–78, 181. In a later round of summary judgment, the district court determined that the government had proffered sufficient evidence to create triable issues as to whether MWI's claims were false as measured against this industry-wide definition of "regular commissions," whether such claims were material, and whether the government had suffered any actual damages as a result of the false claims. United States ex rel. Purcell v. MWI Corp. (MWI II ), 824 F.Supp.2d 12, 26–30 (D.D.C.2011). During this round, the government expanded on its interpretation of the industry benchmark relevant to determining regularity, arguing that the commissions paid to Indimi were so high that they would be considered irregular in any industry. Even so, the government offered evidence that the commissions paid to Indimi would be considered irregular in MWI's industry, which the government defined as the "business of manufacturing and selling pumps and related equipment." Id. at 26–27 & n. 6. The government resisted MWI's argument that in determining whether commissions were regular it was appropriate to take into account the country in which the work giving rise to the commissions was to be completed.

Because the parties disputed whether MWI's commissions complied with this industry-wide standard, the district court denied both motions for summary judgment on the falsity issue, stating that "a jury is more than capable of resolving any borderline definitional issues" presented by the need to apply an industry-wide standard. Id. at 27 & n. 6. The district court also rejected MWI's argument that Purcell must be dismissed from the lawsuit, finding his allegations of fraud had not been based on information solely found in the public domain—either from news articles speaking generally about potential fraud associated with the MWI–Nigeria deal or any related Freedom of Information Act request...