The summary dismissal of a False
Claims Act suit was reversed and remanded by the
Court of Appeals for the Ninth Circuit because there
was a genuine issue of material fact as to whether
the contractor knowingly submitted its bid based on
false estimates. The relator alleged the contractor
violated the FCA by submitting a fraudulently low
bid, based on knowing underestimates of its costs,
in order to improve its chances of winning a
contract for software and hardware used to support
space launch operations. The contractor argued
allegedly
"false" estimates cannot be the basis for
liability under the FCA, because an estimate is a
type of opinion or prediction, and thus cannot be
said to be a
"false statement" within the meaning of the
FCA. The court, however, rejected this argument
based on the
"fraud-in-the-inducement" theory of legal
liability. The court reasoned that FCA liability may
attach where there is
"fraud
surrounding the efforts to obtain the contract."
Thus, false estimates—defined to include fraudulent
underbidding in which the bid is not what the
contractor actually intends to charge—can be a
source of liability under the FCA.
No Specific Intent
The court then considered whether
there was a genuine issue of material fact as to
whether the contractor engaged in fraudulent
underbidding and determined the district court
applied the wrong legal standard under the
"knowledge"
prong of the FCA. The district court required the
relator to demonstrate the contractor acted with
"the intent
to deceive," but the terms
"knowing"
and
"knowingly" as defined in the FCA
"require no
proof of specific intent to defraud" (31
USC 3729(b)(1)). Construing the facts in a light
most favorable to the relator as the non-moving
party, the Ninth Circuit concluded there was a
genuine issue of material fact as to whether the
contractor acted either knowingly, in deliberate
ignorance of the truth, or in reckless disregard of
the truth when it submitted its bid. Specifically,
the relator demonstrated that contractor employees
were instructed to lower their bids without regard
to actual cost. ( U.S. ex rel.
Hooper v. Lockheed Martin Corp., CA-9,
56 CCF ¶79,866) |