A Look Back At FCA Developments In 2012

The False Claims Act has been the government's primary fraud enforcement and recovery tool since the statute was substantially broadened in 1986. Each passing year has seen ever increasing recoveries, and 2012 was no different. Indeed, at the close of the 2012 government fiscal year, the United States had recovered some $4.9 billion in settlements and judgments, which included a number of single recoveries in excess of $1 billion each. A recap of some of the significant judicial decisions from 2012 illustrates that this trend will continue into 2013 and beyond.

In last year's cases, we saw courts hold that estimates and opinions, as opposed to statements of fact, can be actionable under the FCA while also expanding the universe of cases that are subject to the amendments to the statute under the Fraud Enforcement and Recovery Act of 2009 , which extended FCA liability to conduct that previously was not actionable.

We also saw courts toll the statute of limitations for government procurements during times of military conflict short of a formal declaration of war and which further allowed government employees to serve as private whistleblowers under the statute's qui tam provisions when the only reason they even learned of the alleged fraud was because it was disclosed to them in the course of their work for the government.

However, 2012 wasn't all bad news for defendants, as elsewhere we observed efforts to place sensible boundaries on the FCA, such as curbing the damages that can be imposed and reaffirming the line between normal contract administration issues and fraud by reinforcing the concept that the FCA was never intended to police every technical violation of complex, and indeed often ambiguous, regulatory schemes. Regardless, the courts' continuing efforts to interpret the proper scope of the FCA will ensure that it remains a significant area of concern for government contractors for years to come.

Expanded Liability Theories

In Hooper v. Lockheed Martin Corp., 688 F.3d 1037 (9th Cir. 2012), the Ninth Circuit Court of Appeals dealt with an issue of first impression in the jurisdiction — whether an allegedly false estimate or opinion, rather than a factual averment, could constitute a false or fraudulent statement under the FCA. Hooper, a former employee, brought a qui tam action alleging that Lockheed had defrauded the government in a cost-reimbursement contract for the Range Standardization and Automation IIA program regarding certain software and hardware services provided in connection with space launch operations at Vandenberg Air Force Base and Cape Kennedy. There was evidence in the proceedings before the district court that Lockheed's cost estimates were below what it may have believed would be its costs to perform the solicited work scopes.

Notwithstanding the fact that the estimates were expressed as such, and were not certified, the Ninth Circuit (primarily relying on an older case from the Fourth Circuit) held that "false estimates," even if labeled as estimates, could be a source of liability under the FCA. While there was some evidence suggesting that Lockheed may have known that its estimates were unrealistic from the beginning, the court's decision nevertheless blurs the distinction between what qualifies as a "false statement" under the FCA and the statute's separate requirement as to whether the statement was "knowingly" made. Indeed, the Ninth Circuit's decision is contrary to numerous administrative and judicial decisions that have excluded estimates, guesses, or opinions from the type of statements that are actionable under the FCA, because they are inherently subjective in judgment and, thus...