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FCA Claim Improperly Limited to Funds Paid from U.S. Treasury
A district court ruling in a False Claims Act qui tam action that
limited the relators' damages claim was reversed by the Court of Appeals for the
Fourth Circuit because the court erred in restricting the FCA's applicability to
a claim for funds paid from the United States Treasury. The action arose from a
cost-plus contract awarded by the Coalition Provisional Authority in Iraq to
provide risk management services. The relators alleged the contractor made
fraudulent statements and submitted falsified invoices in violation of the FCA
(31 USC 3729-3732). The district court limited the relators' fraud claim to $3
million, which was the amount paid to the contractor with a U.S. Treasury check
(49
CCF ¶78,442). The court concluded that requests for payment from the
Coalition Authority were requests for Iraqi funds and thus did not constitute an
FCA claim. The court reasoned that a request for payment from government funds
does not extend to cases where the government acts solely as a custodian or
administrator of the funds. In reaching its holding, the district court
conducted a source-of-funds analysis, which analyzed the three sources of funds
used by the Coalition Authority: "vested funds," "seized
funds," and the "Development Fund for Iraq." The court concluded
the vested funds consisted of Iraqi monies held in U.S. bank accounts that were
confiscated by Executive Order. It classified seized funds as those that were
physically located in Iraq but legally confiscated by U.S. and coalition forces.
The DFI, it determined, belonged to the Iraqi people. Although the U.S.
government contributed vested funds to the DFI, the court determined the
government no longer had title to those funds when the DFI was used to pay the
contractor's claims. Thus, only the $3 million advance from seized funds
supported a claim under the FCA.
Statutory Language
The relators appealed, arguing the district court erred in conducting a
source-of-funds analysis that resulted in the damages limitation. In looking at
the text of the FCA, the appellate court found the FCA covers a fraudulent claim
even if the claim is "made to a ... grantee, or other recipient" of
U.S. money so long as the claim would draw on a portion of money provided by the
government (31 USC 3729(c)). The district court, therefore, erred in concluding
it was "necessary to consider each source of funds separately to determine
whether a request for payment therefrom constitute[d] a 'claim.' "The
district court also erred in imposing a "control of funds"
requirement. According to the court, when the U.S. transferred vested funds to
the DFI, the government "relinquished control of those funds and they
ceased to be ... government property," and thus the U.S. did not
"provide" a portion of the money. The statutory language, however,
precludes an interpretation requiring the government to retain control over
funds used to pay claims by extending the reach of the FCA to money in the hands
of a government "grantee" or "other recipient." Also, the
contractor's argument that its requests for payment were not "claims"
because the contractor was not in privity with the government lacked merit as
the statutory language provided no indication Congress intended to require
privity (see Allison Engine Co. v. U.S., ex rel Sanders, (US SCt 2008) 52
CCF ¶78,948). Thus, the district court's order limiting the definition of
FCA "claims" was reversed and remanded to give the relators the right
to elect a new trial. (U.S., ex rel. DRC, Inc., et al. v. Custer Battles, LLC,
et al., CA-4, 53
CCF ¶79,087)
(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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