PROCUREMENT FRAUD PANE L DISCUSSION June 14, 2018 1:30 P . M . - - PowerPoint PPT Presentation

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PROCUREMENT FRAUD PANE L DISCUSSION June 14, 2018 1:30 P . M . - - PowerPoint PPT Presentation

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PROCUREMENT FRAUD PANE L DISCUSSION June 14, 2018 1:30 P . M . PANELISTS D AVID J. C HIZE WE R G OL RG K DBE OHN V INCE NT M C K NIGHT S ANF ORD H E R S HARP L L P I SL E D ONAL D J. W IL L IAMSON U D S T S D E NT OF J UST NI T

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SLIDE 1

PROCUREMENT FRAUD

PANE L DISCUSSION

June 14, 2018 1:30 P.M.

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SLIDE 2

2

PANELISTS

DAVID J. C HIZE

WE R

G OL

DBE RG K OHN

VINCE

NTMCKNIGHT

SANF

ORD HE I SL E R SHARP L

L P

DONAL

D J. WIL L IAMSON

U

NI T E D ST AT E S DE PART ME NT OF JUST I CE

KAT

HRYN ZE CCA

ROBBI

NS, RUSSE L L, E NGL E RT

, O RSE

CK, U NT E RE I NE R & SAUBE R L

L P

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SLIDE 3

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Issue 1: The Vague Contract

What Can Go Wrong

  • Amb ig uo us c o mme rc ia l c o ntra c ts a re typic a lly a ddre sse d b y info rma l

ne g o tia tio n o r, a t wo rst, b re a c h o f c o ntra c t suits.

  • Amb ig uo us g o ve rnme nt c o ntra c ts ide a lly fo llo w the sa me pa th. But

the F CA c ha ng e s the c a lc ulus fo r the pa rtie s.

  • T

he re is a risk o f a disc o nne c t b e twe e n ho w re la to rs a nd DOJ inte rpre t a c o ntra c t ve rsus ho w the c o ntra c to r inte rpre ts it.

  • Re la to rs a nd DOJ ha ve b ro ug ht se ve ra l c a se s b a se d o n c o ntra c t la ng ua g e

tha t the c o ntra c to r unde rsto o d diffe re ntly tha n the a g e nc y.

  • Qui tam c a se s c a n re ma in unde r se a l fo r ye a rs, me a ning tha t g o ve rnme nt

a nd c o ntra c to r witne sse s to the o rig ina l a g re e me nt c a n b e c o me una va ila b le .

  • Sta rting a fra ud inve stig a tio n c ha ng e s the to ne b e twe e n the c o ntra c to r

a nd the a g e nc y, le a ding b o th side s to b e c o me re luc ta nt to ne g o tia te .

  • F

CA a lle g a tio ns c a n a lso fo re c lo se the po ssib ility o f o b ta ining a de finitive c o ntra c t inte rpre ta tio n fro m a Bo a rd o f Co ntra c t Appe a ls.

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Obje c tive F a lse hood

  • F

CA lia b ility re q uire s a n “o b je c tive fa lse ho o d,” no t just a diffe re nc e o f o pinio n o r “a dispute d le g a l q ue stio n invo lving the te rms o f a c o ntra c t.’ ” E

.g., U .S . e x re l. Danie lide s

  • v. No rthro p Grumman S
  • ys. Co rp., 2015 WL

5916871 (N.D. I

  • ll. Oc t. 8, 2015)

Sc ie nte r / Knowle dg e

  • Ma ny c o urts ha ve rule d tha t F

CA lia b ility c a nno t a rise whe re a de fe nda nt ha d a “fa c ia lly re a so na b le inte rpre ta tio n o f [a n] unde fine d a nd a mb ig uo us te rm” a nd the a g e nc y did no t “o ffic ia lly wa rn[] … a wa y” the de fe nda nt fro m tha t inte rpre ta tio n. T he se de c isio ns fo llo w the Supre me Co urt’ s de c isio n in S

afe c o I nsuranc e Co . o f Ame ric a v. Burr

, 551 U.S. 47 (2007). E

.g., U .S . e x re l. Purc e ll v. MWI Co rp., 807 F

.3d 281, 284 (D.C. Cir. 2015).

  • Othe r c o urts ha ve rule d tha t re g a rdle ss o f whe the r a c o ntra c t te rm is a mb ig uo us a nd

the de fe nda nt ha s a n re a so na b le inte rpre ta tio n, e vide nc e tha t the de fe nda nt ha d sub je c tive kno wle dg e o f the g o ve rnme nt’ s inte rpre ta tio n c a n e sta b lish kno wle dg e . T he se c a se s fo llo w Halo E

le c tro nic s, I nc . v. Pulse E le c tro nic s, I nc ., 136 S. Ct. 1923 (2016). E .g., U .S . e x re l. Ge rry Phalp e t al. v. L inc are Ho ldings, I nc ., 857 F

.3d 1148 (11th Cir. 2017).

  • Re la to rs in Purc e ll pe titio ne d fo r c e rtio ra ri o n this issue in 2016, a nd a fte r the

g o ve rnme nt re c o mme nde d a g a inst the g ra nt o f c e rtio ra ri, the Supre me Co urt de nie d c e rt. in 2017.

Issue 1: The Vague Contract

Legal Issues

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Ma te ria lity

  • “[I

]f the Go ve rnme nt pa ys a pa rtic ula r c la im in full de spite its a c tua l kno wle dg e tha t c e rta in re q uire me nts we re vio la te d, tha t is ve ry stro ng e vide nc e tha t tho se re q uire me nts a re no t ma te ria l.” U

nive rsal He alth S e rvic e s, I nc . v. U .S . e x re l. E sc o bar,

139 S. Ct. 1989 (2016)

  • T

his sug g e sts tha t if the g o ve rnme nt kne w the c o ntra c to r wa s no t a c ting in a c c o rda nc e with the g o ve rnme nt’ s inte rpre ta tio n o f the c o ntra c t, b ut to o k no a c tio n, the n the vio la tio n c o uld no t b e ma te ria l unde r E

sc o bar.

  • “Wha t ma tte rs is no t the la b e l the Go ve rnme nt a tta c he s to a re q uire me nt, b ut

whe the r the de fe nda nt kno wing ly vio la te d a re q uire me nt tha t the de fe nda nt kno ws is ma te ria l to the Go ve rnme nt's pa yme nt de c isio n.” I

d.

  • T

his la ng ua g e c o nfirms tha t de fe nda nts ha ve to kno w the vio la tio n o f the c o ntra c t te rm wa s ma te ria l to the g o ve rnme nt. I t a lso sug g e sts tha t no t o nly wo uld the g o ve rnme nt o r re la to r ne e d to surmo unt the S

afe c o te st, b ut ra the r

the y wo uld also ne e d to e sta b lish the de fe nda nt ha d sub je c tive kno wle dg e o f the g o ve rnme nt’ s unde rsta nding o f the c o ntra c t.

Issue 1: The Vague Contract

Legal Issues

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Dispute

  • Co ntra c t to de ve lo p c ivilia n a irc ra ft missile de fe nse syste m style d

a s a “fixe d pric e be st e fforts” c o ntra c t. T his te rm wa s no t de fine d in the c o ntra c t.

  • De fe nda nt unde rsto o d the te rm to me a n tha t if it c o uld no t

c o mple te the de live ra b le s fo r the fixe d pric e , it c o uld still b e pa id fo r its b e st e ffo rts a fte r pro viding e vide nc e o f its b e st e ffo rts to the g o ve rnme nt.

  • F
  • rme r e mplo ye e b ro ug ht qui tam a lle g ing , a mo ng o the r thing s,

tha t “b e st e ffo rts” me a nt de fe nda nt ha d to spe nd the e ntire b udg e te d funds, le ss a g ua ra nte e d pro fit, in furthe ra nc e o f the c o ntra c t’ s o b je c tive s.

Issue 1: The Vague Contract

Case Study: U.S. ex rel. Danielidesv. Northrop Grumman Sys.

  • No. 09-cv-7306, 2015 WL 5916871 (N.D. Ill. Oct. 8, 2015)

Issue: Objective Falsehood

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Re sult

  • De fe nda nt mo ve d to dismiss, a rg uing tha t “fixe d pric e b e st e ffo rts” wa s

a mb ig uo us, a nd so its c la ims fo r pa yme nt b a se d o n its re a so na b le inte rpre ta tio n o f the c o ntra c t we re no t “obje c tive ly fa lse .”

  • Co urt de nie d mo tio n to dismiss b e c a use re la to r ha d a lle g e d the de fe nda nt a nd

the g o ve rnme nt ha d a sha re d unde rsta nding o f the c o ntra c t, a nd a llo we d limite d, sta g e d disc o ve ry o n the inte rpre ta tio n o f “fixe d pric e b e st e ffo rts.”

  • Afte r disc o ve ry, De fe nda nt mo ve d fo r summa ry judg me nt a rg uing tha t

re la to r ha d no t e sta b lishe d tha t the de fe nda nt a nd the g o ve rnme nt ha d a sha re d unde rsta nding o f the te rm “fixe d pric e b e st e ffo rts.”

  • Co urt g ra nte d summa ry judg me nt b e c a use re c o rd fa ile d to e sta b lish tha t e ithe r

the de fe nda nt o r the g o ve rnme nt inte rpre te d the c o ntra c t in the sa me wa y a s the re la to r. I t a lso he ld tha t the g o ve rnme nt a nd de fe nda nt did no t sha re a c o mmo n inte rpre ta tio n o f the c o ntra c t.

Issue 1: The Vague Contract

U.S. ex rel. Danielidesv. Northrop Grumman Sys., cont’d

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Dispute

  • De fe nda nt c o ntra c te d to se ll irrig a tio n e q uipme nt to Nig e ria fina nc e d b y

the fe de ra l E xpo rt-I mpo rt Ba nk. As pa rt o f a ppro va l fo r lo a n, the Ba nk re q uire d the de fe nda nt to c e rtify it ha d no t pa id a ny disc o unts, re b a te s, e tc ., in c o nne c tio n with the sa le e xc e pt fo r “re g ula r c o mmissio ns.”

  • F
  • rme r MWI

e mplo ye e file d a qui tam ac tio n c la iming tha t $28 millio n in c o mmissio ns to a Nig e ria n sa le s a g e nt we re “no n-re g ula r c o mmissio ns” tha t sho uld ha ve b e e n re po rte d. T he Unite d Sta te s inte rve ne d.

  • Afte r ye a rs o f litig a tio n, the pa rtie s o n a ppe a l to the D.C. Circ uit a g re e d

tha t the re c o uld b e thre e po ssib le inte rpre ta tio ns o f the a mb ig uo us te rm:

  • Go ve rnme nt’ s “industry-wide ” inte rpre ta tio n: “Re g ula r” me a ns the

c o mmissio ns a lig n with industry b e nc hma rks.

  • I

ntra -firm inte rpre ta tio n: “Re g ula r” me a ns the c usto ma ry c o mmissio n pa id b y the de fe nda nt.

  • MWI

’ s “individua l-a g e nt” inte rpre ta tio n: “Re g ula r” me a ns the c o mmissio n c usto ma rily pa id to the spe c ific a g e nt.

Issue 1: The Vague Contract

Case Study: U.S. ex rel. Purcell v. MWI Corp., 807 F.3d 281, 284 (D.C. Cir. 2015) Issue: Scienter / Knowledge

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Re sult

  • At tria l, the jury fo und MWI

lia b le fo r $7.5 millio n. T he c o urt tre b le d the a mo unt to $22.5 millio n.

  • On a ppe a l, the D.C. Circ uit rule d tha t the c o ntra c t te rm “re g ula r

c o mmissio ns” wa s a mb ig uo us, tha t MWI ’ s “individua l-a g e nt” inte rpre ta tio n wa s o b je c tive ly re a so na b le , a nd tha t the re c o rd la c ke d e vide nc e tha t the g o ve rnme nt pub lishe d writte n g uida nc e o n the me a ning o f the te rm o r o the rwise wa rne d MWI a wa y fro m its inte rpre ta tio n.

  • T

he D.C. Circ uit o ve rturne d the jury ve rdic t finding a nd re ma nde d with instruc tio ns to e nte r judg me nt in fa vo r o f MWI . Re la to rs pe titio ne d fo r c e rtio ra ri o n the sc ie nte r issue , a nd tha t pe titio n wa s de nie d in 2017.

Issue 1: The Vague Contract

Scienter / Knowledge: U.S. ex rel. Purcell v. MWI Corp.,cont’d.

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Dispute

  • De fe nda nt c o ntra c te d with the Ge ne ra l Se rvic e s Administra tio n (“GSA”)

to pro vide so ftwa re lic e nse s a nd ma inte na nc e to va rio us o the r a g e nc ie s unde r a Multiple Awa rd Sc he dule c o ntra c t.

  • During ne g o tia tio ns to re ne w the c o ntra c t a nd during pe rfo rma nc e , CA

wa s re q uire d to ma ke disc lo sure s a b o ut the pric e s it c ha rg e d to c o mme rc ia l c usto me rs, a nd to c o ntinue to g a the r da ta a b o ut its c o mme rc ia l pric e s.

  • A fo rme r e mplo ye e b ro ug ht a qui tam a c tio n a nd the g o ve rnme nt

inte rve ne d. T he g o ve rnme nt a lle g e d tha t CA e xc lude d c e rta in c o mme rc ia l disc o unts fro m the info rma tio n it g a the re d a nd disc lo se d to the g o ve rnme nt, in vio la tio n o f the c o ntra c t. T he g o ve rnme nt c la ime d tho se inc o rre c t disc lo sure s fra udule ntly induc e d GSA to a wa rd a nd c o ntinue pa ying fo r the c o ntra c t a t a n infla te d pric e , a nd thus CA’ s c la ims fo r pa yme nt we re fa lse .

Issue 1: The Vague Contract

Case Study: U.S. ex rel. Shemeshv. CA, Inc., 89 F. Supp. 3d 67(D.D.C. 2015) Issue: Scienter / Knowledge

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Re sult

  • CA mo ve d to dismiss. CA a rg ue d tha t its disc lo sure s c o mplie d with the

te rms o f the c o ntra c t a nd so we re no t fa c tua lly fa lse . CA a lso a rg ue d tha t it c o uld no t ha ve sc ie nte r b e c a use it c o mplie d with its o wn

  • b je c tive ly re a so na b le unde rsta nding the c o ntra c t a nd disc lo sure

re q uire me nts.

  • T

he distric t c o urt disa g re e d tha t the c o ntra c t la ng ua g e c le a rly fa vo re d CA’ s pre fe rre d inte rpre ta tio n, o r c le a rly e sta b lishe d tha t CA’ s inte rpre ta tio n wa s a t le a st o b je c tive ly re a so na b le . T hus, the Co urt c o nc lude d it c o uld no t re so lve the se issue s o n the ple a ding s a nd de nie d CA’ s mo tio n to dismiss.

  • CA e ve ntua lly se ttle d with the g o ve rnme nt fo r $45 millio n, o f whic h $10.2

millio n we nt to the re la to r.

Issue 1: The Vague Contract

Scienter / Knowledge: U.S. ex rel. Shemeshv. CA, Inc.,cont’d.