United States ex rel. Howard v. KBR, Inc.
139 F. Supp. 3d 917
C.D. Ill.2015Background
- Relators allege KBR knowingly violated cross-leveling and Government property procedures under LOGCAP III, resulting in hundreds of millions of dollars of waste and unallowable costs billed to the Government.
- LOGCAP III was a government contract awarded to KBR subsidiaries; DCMA and Army Sustainment Command administered property control and disposition procedures.
- Relators allege KBR systems (Maximo, TRECs, ASL) and policies (PCP, DOP) were manipulated to bypass cross-leveling, hide excess inventory, and misreport inventory status.
- Specific schemes include: failure to cross-level before purchasing; improper removal of property from TREC; improper reservation of goods; returning excess material to the Government while ordering more.
- Documentation and internal communications (emails, PowerPoint, directives) allegedly show senior KBR management knew of the practices and attempted to conceal them from DCMA and the Government.
- Relators contend these actions caused improper payments to KBR under LOGCAP III, and invoices submitted for payment were false records tied to unallowable or unreasonable costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the complaint states a false claim with particularity | Plaintiffs allege factual falsity of invoices for unallowable costs tied to cross-leveling failures. | KBR contends FCA requires a false certification or explicit misstatement tied to payment; lack of a certification theory defeats claim. | Complaint states a false claim with particularity; FCA liability grounded in factual falsity of invoices. |
| Whether invoices themselves constitute false claims absent a false certification | Invoices submitted for payment for unallowable costs are false claims even without express certification. | Watkins and similar authorities require a certification theory; without certification, claims may not be fraudulent. | Invoices themselves can be false claims under § 3729(a)(1)(A) where they request payment for unallowable costs, even without a certification theory. |
| Whether the complaint shows presentment and knowledge of falsity | Relators identify specific individuals and communications showing knowledge of cross-leveling failures and misreporting. | KBR argues the complaint does not adequately connect specific false claims to particular materials or payments. | Complaint sufficiently alleges presentment to the Government and knowledge of falsity, through documented misreporting and improper practices. |
| Whether KBR, Inc. or Kellogg Brown & Root Services, Inc. is properly named and liable | Attachment and signatures indicate individuals acting for KBR entities; KBR, Inc. remains a proper defendant. | KBR, Inc. may not be the entity holding LOGCAP III; KBRSI is the contracting party; dismissal of KBR, Inc. is appropriate. | Defendant KBR, Inc. remains in the case alongside KBRSI; the complaint sufficiently attributes conduct to both. |
Key Cases Cited
- United States ex rel. Gross v. AIDS Research Alliance-Chi., 415 F.3d 601 (7th Cir.2005) (medical research FCA informed by falsity and materiality standards)
- U.S. ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818 (7th Cir.2011) (objective falsehood standard for FCA; certification context)
- United States v. Rogan, 517 F.3d 449 (7th Cir.2008) (implied false certification theory and nexus to payment decisions)
- United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849 (7th Cir.2009) (requires pleading of certification or analogous obligation when asserting legally false claims)
- Sanford-Brown, Ltd. v. United States, 788 F.3d 696 (7th Cir.2015) (an FCA claim premised on failure to certify reasonableness requires nexus to payment)
- Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699 (7th Cir.2014) (clarifies absence of Medicare/Medicaid implied certification doctrine)