Third Circuit Holds Ambiguous Contract Precludes FCA Liability

The Third Circuit recently upheld summary judgment in favor of the defendant in U.S. Dept. of Transp. ex rel. Arnold v. CMC Engineering, a whistleblower suit alleging the defendant overbilled Pennsylvania's Department of Transportation ("PennDOT") in violation of the False Claims Act ("FCA"). The Third Circuit concluded that the defendant's contract with PennDOT was ambiguous, precluding any finding that the defendant knowingly submitted invoices at rates not justified by its employees' credentials. A copy of the court's decision can be found here.

Procedural History

Relator August Arnold worked as an engineer for PennDOT, which engaged defendant CMC Engineering ("CMC") to provide inspectors for highway projects. Relator alleged that CMC misrepresented its employees' qualifications in order to invoice PennDOT at higher rates than the parties' agreement allowed. The district court granted summary judgment for CMC on two grounds. First, ambiguities in the contract between PennDOT and CMC meant that CMC could not knowingly have submitted false claims and was at worst negligent. Second, testimony by PennDot employees led the court to invoke the "government knowledge inference," a doctrine that provides for an inference that defendant lacked the required scienter when there is government knowledge and approval of facts underlying an allegedly false claim.

On appeal, relator challenged both of the district court's grounds for summary judgment. First, he argued there was no contract ambiguity because CMC's interpretation implausibly relied on a catch-all provision permitting alternate equivalent credentials as a basis for billing at higher rates. Second, relator argued that the government knowledge doctrine was not Third Circuit law and should not apply when the knowledge and approval was attributable to PennDOT, a recipient of federal funds, but not the federal government itself.

The Third Circuit Decision

In affirming summary judgment, the Third Circuit agreed with the district court that the parties' contract was ambiguous and that the defendant's conduct had manifested a plausible interpretation of its...