Relying on Escobar, Ninth Circuit Tosses Implied Certification Case

By on January 17, 2017

On January 12, 2017, the US Court of Appeals for the Ninth Circuit affirmed a district court’s grant of summary judgment in favor of a government contractor, where a relator had asserted that the contractor had violated material contractual requirements.

In United States ex rel. Kelly v. SERCO, Inc., defendant SERCO provided project management, engineering design and installation support services for a range of government projects to the US Department of Defense, Navy Space and Naval Warfare Systems Command (SPAWAR). The Federal Acquisition Regulation (FAR) requires that government contracts of this nature contain a clause requiring the contractor to implement a cost and progress tracking tool called an “earned value management system” (EVMS), which is “a project management tool that effectively integrates the project scope of work with cost, schedule and performance elements for optimum project planning and control,” 48 C.F.R. § 2.101, and that this EVMS comply with ANSI-748, a national standard for EVMS. SECRO’s monthly cost reports allegedly did not comply with this standard. After the government declined to intervene, the relator pursued a claim against SERCO arguing that its failure to comply with ANSI-748 amounted to a fraud against the government.

The district court granted summary judgment in SERCO’s favor, concluding that compliance with ANSI-748 was not material to payment. While the case was on appeal, the Supreme Court of the United States decided Universal Health Services, Inc. v. Escobar, which held that for a plaintiff to succeed in a False Claims Act action relying upon the implied certification theory, it needed to prove (1) the claim asserts a request for payment and makes specific representations about the goods or services provided, and (2) the failure to disclose noncompliance with material statutory, regulatory or contractual requirements makes those representations misleading half-truths.

On appeal, Ninth Circuit applied the Supreme Court’s decision in Escobar, affirming the district court’s holding on both prongs of the Escobar decision. First, the court concluded that under Escobar, a plaintiff pursuing a claim based upon the implied certification theory must make “specific representations” about the contractor’s performance, which SERCO’s cost reports did not. Second, the court concluded that compliance with ANSI-748 was not material to payment.  In doing so, the court noted that compliance with ANSI-748 was not an express term in the SPAWAR’s delivery orders. In addition, the court noted that SPAWAR did not rely upon SERCO’s cost reports in deciding whether to pay claims.

Accordingly, the Ninth Circuit’s reasoning shows the limits to the implied certification theory following the Escobar decision.