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District Court Reverses Course on Whether Kickbacks Presumptively Inflated Government Costs Under the False Claims Act

Jun.15.2021

On June 3, 2021, the district court judge in U.S. ex rel. Conyers v. Halliburton Co. et al., reversed on reconsideration a prior ruling that a kickback presumptively inflates a contract price under the False Claims Act (FCA). The court previously held that the government was entitled to a rebuttable presumption that kickbacks received by a former employee of the prime contractor, Kellogg Brown & Root (KBR), inflated the contract price under the False Claims Act. The judge revised that ruling, citing to a factual dispute over whether the kickback actually inflated the amount the government paid to reimburse KBR for its subcontract costs. The dispute centered on the falsity element of the FCA and whether KBR submitted, or caused to be submitted, a false claim for payment to the government. The revised decision is consistent with other FCA case law holding that falsity cannot be predicated on a presumption, and that the government must prove that kickbacks actually inflated the contract price.

In 2001 the United States Army entered into a contract with KBR to provide logistical support services for operations in Iraq.  The task orders issued under the contract were cost-plus-award-fee, and KBR sought payment from the Army by submitting invoices for services performed under the contact. The government’s FCA claims concern two subcontracts that KBR entered into for leases of refrigerated trucks. There is no dispute between KBR and the government over whether a kickback scheme existed between a former KBR employee, Anthony Martin, and a subcontractor. Both parties agree that Martin received kickbacks from the subcontractor in exchange for providing it with information about the bids of competitors, which in turn helped the subcontractor obtain about $13.5 million in subcontracts from KBR. The government and KBR filed cross-motions for summary judgment in November 2020.

KBR sought to avoid summary judgment on the government’s FCA claims by arguing that the government could not establish falsity. KBR argued that the government could not show that KBR’s claims for payment for the two subcontracts included the kickback amounts agreed upon by Martin and the subcontractor. KBR pointed to deposition testimony from Martin stating that he did not known whether the subcontractor’s bids to KBR, or the amounts charged by KBR to the Army, included the kickback amounts that he negotiated with the subcontractor. The court, however, found that Martin’s personal knowledge was immaterial. Citing to dicta in a 1966 Supreme Court decision pertaining to the Anti-Kickback Act, the court found that the government was entitled to a rebuttable presumption that the subcontractor’s bid would reflect the amount it planned on paying to Martin as a kickback, and that kickbacks in government contracts necessarily inflate the price to the government.

KBR filed a motion for reconsideration, arguing that there was conflicting evidence about whether KBR inflated the amounts charged to the government for the kickback scheme. On reconsideration, the government highlighted statements from Martin’s plea agreement that were reaffirmed in grand jury and prior testimony that he and the subcontractor knowingly and willfully incorporated the amount of the kickback price into the price of the subcontracts. But during his deposition, Martin testified that he did not know whether the subcontractor’s bids to KBR, or the amounts charged by KBR to the government, included the kickback amounts he negotiated with FKTC. The conflicting testimony was enough to cause the judge to change his mind about his March ruling and allow the factual falsity claims to proceed to trial. Consequently, the government will need to show that the kickbacks actually inflated the prices paid by the government, or resulted in costs to the government that were higher than would have been paid but for the kickbacks.

The revised decision corrects the mistaken notion that the government can satisfy its burden in FCA kickback cases by relying on a presumptive price increase caused by the kickback scheme. The decision reinforces the principle that the government must prove that the kickbacks actually inflated the contract price, and that an Anti-Kickback Act violation, standing alone, cannot serve as the basis for falsity under the FCA.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Stephen M. Byers
Partner – Washington, D.C.
Phone: +1 202.624.2878
Email: sbyers@crowell.com
Brian Tully McLaughlin
Partner – Washington, D.C.
Phone: +1 202.624.2628
Email: bmclaughlin@crowell.com
Amy Laderberg O'Sullivan
Partner – Washington, D.C.
Phone: +1 202.624.2563
Email: aosullivan@crowell.com
Bridget Carr
Associate – Washington, D.C.
Phone: +1 202.624.2826
Email: bcarr@crowell.com