False Claims that Don’t Violate the False Claims Act

A recent Fourth Circuit decision answers this riddle, “How can a contractor knowingly submit a false claim to the government without violating the False Claims Act (FCA)?”  Give up?  The answer is blindingly obvious—once you’ve heard it.

The answer is that a false claim doesn’t violate the FCA unless it results in an overcharge to the government.  In the case before the court, the whistleblower alleged false claims that undercharged the government.

Scott Carlson sued his former employer, DynCorp International, alleging that he was fired in retaliation for trying to stop the company from violating the government’s Cost Accounting Standards and Financial Accounting Regulations by understating its indirect costs.  He said that he had repeatedly raised the issue with higher-ups and was fired for it.

The district court dismissed the case under Rule 12(b)(6) for failure to state a claim, ruling that Scott failed the requirement of alleging that the retaliation was for “investigating matters that reasonably could lead to a viable FCA action.”  The Fourth Circuit agreed with Scott that the lower court’s reasoning was out-of-date in light of a 2009 amendment of the FCA expanding  protected activity to include “efforts to stop 1 or more violations” of the FCA, as well as activity leading to an FCA action.

But that’s where the court’s agreement with Scott ended.  The court held that Scott “had failed to show that his belief that DynCorp was violating the FCA was objectively reasonable.”   He couldn’t show that his belief was reasonable because a claim doesn’t violate the FCA unless it results in financial loss to the government.   Scott’s allegations, if true, would result in underbilling, not overbilling.

So the dismissal of Scott’s complaint was affirmed.  The case is Carlson v. DynCorp International, No. 14-1281 (4th Cir., Aug. 22, 2016).

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