Court Applies Contra Proferentem Doctrine Against The Government In An FCA Case Based On An Ambiguous Contract Provision

In order to resolve the "falsity" element in many False Claims Act ("FCA") cases, courts often must grapple with the meaning of the contractual or regulatory term alleged to have been violated. The issue often is presented for court resolution when the FCA defendant argues that the relevant terms are ambiguous or, at worst, subject to a reasonable interpretation that obviates the claimed violation. Many courts faced with such ambiguity arguments in FCA cases have deferred the issue with respect to FCA "falsity" and have instead addressed it as part of the FCA "knowledge" or "intent" element. See United States ex rel. K & R Ltd. P'ship v. Massachusetts Hous. Fin. Agency, 530 F.3d 980 (D.C. Cir. 2008); United States ex rel. Farmer v. City of Houston, 523 F.3d 333 (5th Cir. 2008); United States ex rel. Oliver v. Parsons Co., 195 F.3d 457 (9th Cir. 1999). See also FraudMail Alert No. 08-07-09, DC Circuit, Applying Supreme Court's Decision in Safeco to False Claims Act, Finds Lack of "Reckless Disregard" in FCA Allegations Based on Ambiguous Government Requirements (July 9, 2008). In addressing contractual ambiguity arguments under the FCA, however, it has been rare for courts to apply the interpretive rule known as the doctrine of contra proferentem. The rule is based on a principle of fundamental fairness: a party that drafts and imposes an ambiguous term should not benefit from that ambiguity. While courts have long recognized and applied this general rule of contract interpretation that requires a latent ambiguity in a contract provision to be construed against the party that drafted the provision in other contexts, such as traditional contract and insurance cases, the rule had not been applied in a reported FCA case. That circumstance changed last month.

In Chapman Law Firm v. United States, No. 09-891C, 2012 WL 256090 (Fed. Cl. Jan. 18, 2012), the U.S. Court of Federal Claims applied the doctrine to the interpretation of an ambiguous term in a Department of Housing and Urban Development ("HUD") contract underlying an FCA counterclaim asserted by the government. In doing so, the court found that the contractor's interpretation was reasonable, and denied the government's motion for partial summary judgment. The application of this contract interpretation doctrine in an FCA case should not be surprising, but it is significant because it makes clear that, in certain FCA cases, fraud claims cannot rest on facially ambiguous contract provisions. Moreover, the rationale of the doctrine applies in areas outside of contracts, and FCA defendants should therefore be able to assert the contra proferentem doctrine as a defense in cases in which the...