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FCA Defendant's Counterclaims Dismissed as Against Public Policy

A motion to dismiss counterclaims brought by the defendant in a False Claims Act action was granted in part by the District Court for the District of Columbia because some of the counterclaims were void as against public policy. The relator was a former employee of a contractor that provided the government with moving and other logistics services. In bringing the qui tam action, the relator alleged a number of FCA violations, including the contractor's submission of invoices for payment without paying employees the prevailing wage rate under the Services Contract Act, billing the government for the same hours worked by employees on more than one project, failing to adhere to the "best price" requirement of contract schedules, and double-charging for energy surcharges. In response, the contractor brought a number of counterclaims, including claims for malicious prosecution and breach of contract for failure to return company property as required by the parties' employment separation agreement. In addition, the contractor sought contractual indemnification from the relator for any liability under the FCA. The government and relator moved to dismiss all of the counterclaims as void against public policy or for the contractor's failure to plead sufficient facts.

FCA's Purpose

With regard to the breach of contract counterclaim, the government argued enforcing the separation agreement would prevent individuals from furnishing evidence to the government or making allegations under the FCA. The court agreed and found the counterclaim alleging breach of contract for the relator's failure to return a company e-mail violated public policy. Enforcing a private agreement that requires a relator to turn over his copy of a document, which is likely to be needed as evidence at trial, to a defendant who is under investigation would unduly frustrate the purpose of FCA. The indemnification counterclaim seeking to hold the relator liable for any damages arising from the pending FCA action was also barred as contrary to public policy. A defendant found liable of FCA violations may not pursue a counterclaim that will have the effect of contribution or indemnification. Therefore, a counterclaim is impermissible if it depends on a finding the defendant is liable under the FCA, because granting the counterclaim would have the equivalent effect of a claim for contribution or indemnification. Also, the malicious prosecution counterclaim was dismissed as premature because the FCA action had not been decided and, if a plaintiff were permitted to sue before it prevailed in the original action, an inconsistent judgment might be entered on the same question. (U.S. ex rel. Head v. Kane Co., et al., DC DofC, 54 CCF 79,214)




(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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