On November 8, 2012, the U.S. Department of Justice (DOJ) announced its intention to continue expanding the False Claims Act’s (FCA) reach by intervening in a lawsuit against Fluor Hanford Inc. and its parent company, Fluor Corporation (collectively Fluor), in the U. S. District Court for the Eastern District of Washington. In this case, DOJ is using the rarely invoked Byrd Amendment as the hook to pursue FCA claims. The complaint alleges that Fluor used federal contract funds to pay for lobbying services in violation of the Byrd Amendment and therefore, violated the FCA and subjected itself to treble damages. 31 U.S.C. § 3729 et seq. (FCA); 31 U.S.C. § 1352 (Byrd).
As discussed below, there have been few prosecutions under the Byrd Amendment, and FCA liability predicated on false certifications of compliance with the Byrd Amendment is a novel approach. The Fluor case highlights that government contractors must be aware of the lobbying restrictions under the Byrd Amendment as well as the type of conduct that could expose them to liability and treble damages under the FCA. DOJ’s decision to intervene in this case also underscores the government’s increased scrutiny and willingness to prosecute cases involving an alleged misappropriation of public funds. It also demonstrates DOJ’s continued efforts to expand the reach of the FCA by pursuing actions based on conduct that falls within the scope of independent statutes that carry their own civil penalties. Instead of seeking penalties via the underlying statute (here, the Byrd Amendment), DOJ has elected to proceed under the FCA where it can recover treble damages as well as civil penalties.
The following alert provides a brief summary of the allegations in the Fluor complaint, as well as an overview of the Byrd Amendment and the FCA.
Between 1997 and 2008, Fluor had a prime contract with the U.S. Department of Energy (DOE) to provide security, maintenance, and operational services at the DOE’s Hanford Nuclear Site in Washington State. Under this contract, Fluor managed and operated the Hazardous Materials Management and Emergency Response (HAMMER) Center, a federally funded facility established to train Hanford site workers, first responders, and law enforcement personnel.
The complaint alleges that, as a condition of receiving its DOE contract, Fluor was required to certify that it would not use federal funds for lobbying activities. The complaint further alleges that between 2005 and 2008, Fluor blatantly ignored these restrictions by hiring two lobbying firms, paid with DOE funds, to lobby members of Congress and executive branch agencies to include additional funds for HAMMER in agency appropriations. DOJ intervened in the lawsuit with respect to Fluor, but declined to intervene with respect to other named defendants, including the two lobbying firms.
The complaint asserts liability on the theory that the use of federal funds for lobbying purposes rendered Fluor’s certification of compliance with the Byrd Amendment false, and that Fluor therefore knowingly presented false claims to the government. The complaint also asserts a claim for retaliation, harassment, and constructive discharge of the relator. It seeks treble damages under the FCA, an $11,000 civil penalty for each false claim, as well as damages and reinstatement for the relator.
The Byrd Amendment supplements other federal lobbying statutes and regulations and provides that:
None of the funds appropriated by any Act may be expended by the recipient of a Federal contract, grant, loan, or cooperative agreement to pay any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with any Federal action described in paragraph (2) of this subsection [i.e. , the awarding of any federal contract; the making of any federal grant or loan; the entering into of any cooperative agreement; and the extension, continuation, renewal, amendment, or modification of any federal contract, grant, loan, or cooperative agreement]. 31 U.S.C. § 1352(a)(1)-(2).
The Byrd Amendment also includes detailed disclosure requirements and provides for civil penalties ranging from $10,000 to $100,000 for each violation. The U.S. Office of Management and Budget (OMB) and the U.S. General Accountability Office (GAO) have issued regulations and other guidance on compliance; however, there are only a handful of cases that discuss or interpret the Byrd Amendment. Courts appear inclined to apply the same definition of “lobbying” activity found in other federal statutes and regulations. Lobbying and political activity costs also are subject to their own cost principle at 48 C.F.R. 31. § 205-22, which defines many lobbying costs (including costs covered by the Byrd Amendment) as unallowable and provides strict accounting and recordkeeping requirements. Clients should familiarize themselves with these and other lobbying restrictions and exercise caution when conducting activities involving federal agencies or Congress.
False Claims Act
The FCA imposes civil liability on any person who, inter alia, “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A)-(B). Further, even if a claim is not false on its face, under an express certification theory, a statement or claim is deemed false if a company falsely certifies its compliance with a statute or other requirement that is a prerequisite to payment by the government. The judicially created theory of implied certification further expands the scope of what constitutes a false statement under the FCA by imposing FCA liability for violations of other laws or regulations, even where the contract or claim does not contain a requirement for express certification of compliance with the underlying law or regulation. Violations of the FCA carry civil penalties of $5,000 to $11,000 for each false claim, plus treble damages sustained by the government. 31 U.S.C. § 3729(a)(1).
FCA liability predicated on violation of the Byrd Amendment is relatively novel. Only one reported decision has supported this theory and permitted the government to proceed on the basis of the defendant’s false certification that it would comply with the Byrd Amendment when it applied for grants from DOJ. See United States v. National Training & Info. Ctr., Inc., 532 F. Supp. 2d 946 (N.D. Ill. 2007). In that matter, the government did not seek to prosecute the defendant directly for violations of the Byrd Amendment, but instead chose to proceed solely under the FCA, which as noted, provides for treble damages. However, if the government meets with success in these types of cases, it could expand its prosecutions by seeking civil penalties and damages under both statutes, for the underlying conduct as well as a certification made to the government that is rendered false by that conduct.
Non-compliance with federal statutes or regulations therefore may expose a company to severe monetary penalties. Clients should take steps to ensure compliance with any express certifications made in connection with government contracts or other claims for payment from federal funds, and clients should familiarize themselves with the statutes and regulations that govern their interactions with Congress or any federal agency.