The Fifth Circuit Weighs In On Vicarious Liability Under The Anti-Kickback Act

In a recent case of first impression, the Fifth Circuit broadly interpreted civil liability for government contractors under § 8706(a)(1) of the Anti-Kickback Act1 (the "AKA"). In United States ex rel. Vavra et al. v. Kellogg Brown & Root, Inc.2 ("KBR") the court held that corporations could be vicariously liable for the actions of any employee acting with "apparent authority," irrespective of whether the offending employee was acting within the scope of their employment or for the employer's benefit. The decision has implications for government contractors and may lead employers all over the country to evaluate whether additional compliance measures would be appropriate.

Case Background

In 2001, Kellogg Brown & Root Inc. ("KBR") contracted with the United States Army to provide global logistical services, directly and through subcontractors. As part of the contract, KBR engaged two subcontractors, EGL, Inc. ("EGL") and Panalpina, Inc. ("Panalpina") to carry out work under the contract, including the transport of military equipment and supplies to Iraq, Afghanistan and Kuwait between 2002 and 2006.

Intervening in a qui tam suit initially brought by two private whistleblowers, the United States filed a complaint alleging that employees in KBR's transportation department accepted kickbacks in the form of meals, drinks, sporting event tickets and other gifts and entertainment from EGL and Panalpina on at least one hundred forty-eight occasions. According to the complaint, the kickbacks were calculated to obtain and receive favorable treatment on KBR subcontracts. The alleged favorable treatment included overlooking service failures and awarding additional subcontracts despite such failures.

Anti-Kickback Act Civil Penalty Provision

The AKA prohibits any person from giving, offering, requesting or accepting a kickback in connection with a federal government contract.3 The AKA civil penalty provision under § 8706(a) provides:

(a) Amount - The Federal Government in a civil action may recover from a person

(1) that knowingly engages in conduct prohibited by section 8702 of this title a civil penalty equal to

(A) twice the amount of each kickback involved in the violation; and

(B) not more than $10,000 for each occurrence of prohibited conduct; and

(2) whose employee, subcontractor, or subcontractor employee violates section 8702 of this title by providing, accepting, or charging a kickback a civil penalty equal to the amount of that kickback

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