United States Ex Rel. Kelly v. Serco, Inc.
846 F.3d 325
9th Cir.2017Background
- Serco contracted under SPAWAR NESS Delivery Orders #0049 and #0054 to provide project management, EVM reports, and equipment/services for DHS’s AWS border-communications project; Serco used internally compiled Excel reports and a single charge code rather than an automated ANSI-748-compliant EVMS.
- SPAWAR accepted Serco’s Excel-based monthly cost reports after DHS approval and continued to pay Serco’s public vouchers totaling over $5.5 million; SPAWAR later determined EVM reporting was not cost-justified and reduced EVM staff.
- Darryn Kelly, Serco’s EVM analyst, reported to DHS in April 2011 that Serco’s EVM reports were unreliable and allegedly falsified; Serco laid Kelly off in May 2011 and his position was eliminated.
- Kelly filed a qui tam FCA suit (implied false certification, false records, conspiracy, reverse false claims) and a California wrongful-termination (Tameny) claim; the district court granted summary judgment for Serco on all claims.
- On appeal, the Ninth Circuit reviewed de novo and focused principally on whether Kelly met Escobar’s demanding materiality standard for an implied false certification theory and whether any false public claim was shown.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Serco’s public vouchers impliedly certified compliance with ANSI-748 (FCA implied false certification) | Kelly: Delivery Orders required EVM reports and referenced ANSI-748, so vouchers impliedly certified compliance; failure to disclose noncompliance was material | Serco: Delivery Orders/ CDRLs allowed "contractor format" (Excel); no express payment condition on ANSI-748 and government accepted reports/payments | Held for Serco: Even if ANSI-748 was a requirement, Kelly failed Escobar’s materiality test; government accepted reports and paid despite knowledge, so no FCA liability |
| Whether public vouchers contained false statements or claims (FCA claim element) | Kelly: Backup/project reports were falsified and misleading about costs/performance | Serco: Vouchers described work performed and costs; principal payments were for hardware/software/travel/labor actually provided | Held for Serco: No evidence vouchers themselves were false; FCA attaches to the claim for payment, and an actual false claim was not shown |
| Materiality under Escobar (whether noncompliance would have affected payment) | Kelly: Government relied on Serco’s reports to manage AWS and would not have paid if aware of falsified EVM | Serco: SPAWAR/DHS accepted Excel reports, found EVM unhelpful, and eliminated EVM requirement; they paid vouchers with knowledge of reporting format | Held for Serco: Materiality standard is demanding; government’s full payments and continued acceptance are strong evidence of non-materiality |
| Tameny wrongful termination based on Labor Code §1102.5 (retaliation for reporting) | Kelly: He was fired for reporting Serco’s practices to DHS, violating public policy | Serco: No one at Serco knew Kelly had reported to DHS before termination; position eliminated due to reduced EVM need | Held for Serco: Summary judgment affirmed — Kelly failed to show Serco knew of the protected disclosure before termination and waived challenge to §1102.5 ruling on appeal |
Key Cases Cited
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (establishes implied false certification framework and demanding materiality standard)
- Cafasso v. General Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir.) (FCA liability attaches to an actual false claim; emphasizes focus on the claim submitted)
- United States ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995 (9th Cir.) (summary judgment standards and relator’s burden to present evidence supporting fraud)
- Hooper v. Lockheed Martin Corp., 688 F.3d 1037 (9th Cir.) (elements of § 3729(a)(1)(B) false-records claim require a false claim)
- United States v. Science Applications Int’l Corp., 626 F.3d 1257 (D.C. Cir.) (discusses limits on implied certification and materiality concerns)
- Green v. Ralee Engineering Co., 19 Cal.4th 66 (Cal. 1998) (Tameny wrongful-termination framework; public-policy basis must rest on statute or constitution)