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Reasonable Interpretations of Statutes May Prevent Liability Under the False Claims Act

January 11, 2016 By Andrew Howard

As a recent case from the District of Columbia Circuit demonstrates, the knowledge requirement of the False Claims Act (FCA) often creates the largest impediment for those looking to hold defendants liable for their false certifications to the government. In United States ex. rel. Purcell v. MWI Corp., No. 14-5210, 2015 WL 7597536 (D.C. Cir. Nov. 24, 2015), the United States brought a civil action under the FCA against MWI Corporation. The government alleged that MWI made false certifications to the Export-Import Bank to secure loans for financing the sale of water pumps to Nigeria. Under the terms of the agreement between MWI and the bank, MWI had to certify that the portion of the loans used to pay their sales agents only included “regular commissions.” At the initial trial, a jury determined that these certifications were false and awarded the government $22.5 million in compensatory and treble damages to compensate the government for harm caused by their false claims. But because FCA defendants are entitled to offset trebled damages with any amount paid and because Nigeria had already repaid the loans, the government did not actually recover any damages.

The government appealed the damages finding. In response to the government’s appeal, MWI claimed that the government failed to establish that MWI had knowingly made a false claim: MWI understood the term “regular commissions” to mean those that an exporter had historically paid to an individual sales agent, rather than the amount that is normally paid in the industry. Further, the government had not provided guidance that would have contradicted MWI’s understanding. In reviewing the case to determine whether a defendant “knowingly” submitted a false claim, the D.C. Circuit relied on Supreme Court precedent in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), by considering two issues: (1) whether the defendant’s interpretation of an ambiguous term in a regulatory provision was objectively reasonable; and (2) whether there is any evidence that the agency warned the defendant away from that interpretation. This precedent had developed during the period that the MWI case was winding through the courts. Using the applicable standard, the court determined that MWI’s interpretation was objectively reasonable and there was no evidence that the bank or any other governmental entity advised MWI that its interpretation was incorrect. Consequently, the court ruled that the government had not demonstrated that MWI knowingly submitted a false claim, and reversed the district court’s order against MWI.

This case serves as a timely reminder of the current state of the law. As the Supreme Court stated in Safeco, where there is a “dearth of guidance” and “less-than-pellucid statutory text,” a business’s reading of a statute may not be “objectively unreasonable” and may fall short of being a “willful violation” of a statute. Thus, FCA liability for false certification may not attach. It becomes incumbent on businesses to keep track of rule changes in a given field and enlist counsel and advisors as watchpersons to ensure that business are not overlooking agency warnings on what might otherwise be reasonable interpretations.

Filed Under: Government Contract-Related Investigations and the False Claims Act Tagged With: District of Columbia Circuit, Export-Import Bank, False Claims Act (FCA), Nigeria, Safeco Insurance Co. of America v. Burr, United States e. re. Purcell v. MWI Corp.

About Andrew Howard

Andy Howard is a partner in the firm’s Construction & Government Contracts Group who represents clients across a wide range of industries, including construction, health care, aerospace, energy and technology. Andy’s practice involves representing construction industry professionals and federal, state and local government contractors.

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This blog is a service of Alston & Bird’s Government Contracts team and provides insights on cases, rules, trends, and latest developments in local, state, and federal government contracting. Our attorney observations include analysis of investigations, litigation, protests and issues affecting present or prospective prime contractors, subcontractors, and grant recipients across various industries.

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