UNITED STATES of America, ex rel., David R. VAVRA, et al., Plaintiffs United States of America, Intervenor-Appellant v. KELLOGG BROWN & ROOT, INCORPORATED, Defendant-Appellee.
No. 12-40447.
United States Court of Appeals, Fifth Circuit.
July 19, 2013.
722 F.3d 343
Marie Roach Yeates, Esq. (argued), Vinson & Elkins, L.L.P., Houston, TX, Michael Andrew Heidler, Vinson & Elkins,
Before JOLLY, BENAVIDES, and HIGGINSON, Circuit Judges.
HIGGINSON, Circuit Judge:
We are asked to decide a question of first impression in interpreting the Anti-Kickback Act (the “AKA” or the “Act“),
For the reasons outlined below, we conclude the district court erred in finding that
FACTS AND PROCEEDINGS2
In 2001, KBR secured a contract to provide global logistical services to the United States Army, an agreement known as Logistics Civil Augmentation Program III (“LOGCAP III“). LOGCAP III was structured as an “indefinite delivery/indefinite quantity contract,” under which the Army issues KBR discrete task orders that KBR may fulfill on its own or by retaining subcontractors. KBR periodically bills the Army for the costs of performing the task orders, including costs incurred by its subcontractors, and is also permitted to charge the Army mark ups of one percent as profit and an award fee of up to two percent. KBR engaged two subcontractors, EGL, Inc. (“EGL“) and Panalpina, Inc. (“Panalpina“) to assist in carrying out LOGCAP III task orders to transport military equipment and supplies to Iraq, Afghanistan, and Kuwait between 2002 and 2006.
As the government alleges, employees in KBR‘s transportation department accepted kickbacks from counterparts in EGL and Panalpina calculated to “obtain favorable treatment on ... subcontracts with KBR, such as overlooking service failures and continuing to award new subcontracts ... despite such failures.” The allegations center on KBR‘s Corporate Traffic Supervisor for LOGCAP III, Robert Bennett. Bennett was responsible for overseeing EGL‘s and Panalpina‘s performances on LOGCAP III subcontracts and for reviewing the invoices those subcontraсtors billed KBR for their services. From 2002 to 2006, Bennett and four colleagues in the KBR transportation department accepted kickbacks from Kevin Smoot, managing director of EGL‘s freight forwarding station, as well as other EGL employees acting on Smoot‘s instructions, on at least ninety-three occasions. The benefits
This civil action commenced whеn two private individuals brought a qui tam suit against KBR, Bennett, and others for the kickback scheme. The government intervened in the case against KBR and filed its own complaint. KBR moved to dismiss the government‘s complaint. As relevant to the present appeal, KBR argued the government failed to state a claim for civil liability under the AKA, because
To obtain final judgment, the government voluntarily dismissed all of its remaining claims and filed the present ap-
STANDARD OF REVIEW
We review the district court‘s decision to grant a motion to dismiss de novo. United States ex rel. Rafizadeh v. Cont‘l Common, Inc., 553 F.3d 869, 872 (5th Cir.2008). We “accept ‘all well pleaded facts as true, viewing them in the light most favorable to the plaintiff.‘” Cuban, 620 F.3d at 553 (quoting In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir.2007)). To avoid dismissal, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir.2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)) (internal quotation marks omitted).
DISCUSSION
We begin with a brief description of the relevant provisions of the AKA, before reaching the two merits issues raised on appeal: whether
A. The Anti-Kickback Act‘s Civil Liability Provisions
“In the idiom of economic crime, a ‘kickback’ is a kind of commercial bribe.” United States v. Purdy, 144 F.3d 241, 242 (2d Cir.1998). Congress enacted the AKA in 1946, responding to reports revealing that World War II defense subcontractors paid fees to prime contractors to gain valuable military subcontracts. Id. at 242-43; see S.REP. NO. 99-435, at 3 (1986). The taxpayer typically bore the cost of the fees, as prime contractors charged the government subcontract costs inflated by the amount of such “kickbacks.” See United States v. Acme Process Equip. Co., 385 U.S. 138, 143, 87 S.Ct. 350, 17 L.Ed.2d 249 (1966); Purdy, 144 F.3d at 242-43.
The AKA presently defines a “kickback” as:
any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind that is provided to a prime contractor, prime contractor employee, subcontractor, or subcontractor employee to improperly obtain or reward favorable treatment in connection with a prime contract4 or a subcontract5 relating to a prime contract.
A person may not—
(1) provide, attempt to provide, or offer to provide a kickback;
(2) solicit, accept, or attempt to accept a kickback; or
(3) include the amount of a kickback prohibited by paragraph (1) or (2) in the contract price—
(A) a subcontractor charges a prime contractor or a higher tier subcontractor; or
(B) a prime contractor charges the Federal Government.
The case turns on interpreting the civil liability provisions of the AKA, codified at
(a) Amount.—The Federal Government in a civil action may recover from a person—
(1) that knowingly engages in conduct prohibited by section [53] of this title a civil penalty equal to—
(A) twice the amount of each kickback involved in the violation; and
(B) not more than $[11,000]6 for each occurrence of prohibited conduct; and
(2) whose employee, subcontractor, or subcontractor employee violates section [53] of this title by providing, accepting, or charging a kickback a civil penalty equal to the amount of that kickback.
B. Whether § 55(a)(1) Permits Holding Employers Vicariously Liable
We turn to whether the government may ever bring a suit under
The district court‘s reading gives individual expression to both subsections (a)(1) and (a)(2), but it insufficiently accounts for the fact that both of
Congress‘s decision to provide for vicarious liability under both subsections does not render
We add that we appreciate Judge Jolly‘s separate effort, in concurrence, to explore the distinction between the “knowing[]”
C. Whether the Complaint Sufficiently Alleges Vicarious Liability
We next reach KBR‘s challenge to whether the government pleaded facts sufficient to hold KBR liable for the conduct of its employees. When grappling with the standard for imposing vicarious liability in civil liability provisions, we look to the common law principles distilled in the Restatement (Second) of Agency for guidance. See Kolstad v. Am. Dental Ass‘n, 527 U.S. 526, 542, 119 S.Ct. 2118, 144 L.Ed.2d 494 (1999); Am. Soc‘y of Mech. Eng‘rs, Inc. v. Hydrolevel Corp. (ASME), 456 U.S. 556, 565-66 & n. 5, 102 S.Ct. 1935, 72 L.Ed.2d 330 (1982); United States v. Ridglea State Bank, 357 F.2d 495, 498-500 (5th Cir.1966). Undеr the default, common law rule of vicarious liability, “[a] master is subject to liability for the torts of his servants committed while acting in the scope of their employment,”10 or, if the act is committed outside the scope of employment, if “the servant purported to act or to speak on behalf of the principal and there was reliance upon apparent authority, or he was aided in accomplishing the tort by the existence of the agency relation.” RESTATEMENT (SECOND) OF AGENCY § 219 (1958) (emphasis added); accord ASME, 456 U.S. at 565-67; see also In re Hellenic Inc., 252 F.3d at 395. The government, for its part, neither avers in its complaint nor advances on appeal that the KBR officials accepting bribes did so within the scope of their employment. The government instead argues the KBR officials acted within their apparent authоrity. “Apparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other‘s manifestations to such third persons.” ASME, 456 U.S. at 566 n. 5 (quoting RESTATEMENT (SECOND) OF AGENCY § 8 (1958)).
KBR‘s challenge is that the AKA‘s language and structure indicate congressional intent to deviate from the default rule and require the government to plead, and later to prove, a narrower theory of vicarious liability than apparent authority. KBR urges principally that the government must allege KBR employees acted with an intent to benefit KBR and were of managerial level acting within the scope of their employment, before the government may state a claim imputing liability to KBR. We disagree, not being persuaded judicially to interpret this statute to apply restrictive notions of vicarious liability.
Specifically, and starting with the intent-to-benefit requirement, the district court buttressed its decision to grant the motion to dismiss by noting that the government could not, in any event, impute vicarious liability to KBR for “knowingly” violating
In Ridglea, the government sought to hold two banks liable under the False Claims Act (“FCA“) for the conduct of a former employee who knowingly approved false and fraudulent Federal Housing Authority loan applications while working at the banks. 357 F.2d at 496. The version of the FCA in effect at the time gave the government the right to recover, for knowing violations of the law, double damages and a forfeiture of $2000 for each false claim. See id. at 499. In deciding whether the banks could be held liable, we noted the government‘s reliance on case law establishing “that in most civil cases the employer is held liable for the fraudulent misrepresentations of his agent, even though the agent acted without any intent to benefit his employer, so long as the third person reasonably believed that the agent was acting within the scope of his employment.” Id. at 499. We distinguished the case before us, however, reasoning: “All of these authorities concern civil actions to recover actual loss caused by the misrepresentations of an employee; not, as here, actions to recover forfeitures and double damages far in excess of actual loss.” Id.
We focused particularly on the FCA‘s $2000 forfeiture provision, which “ha[d] been held to be mandatory and beyond the power of the courts to modify no matter how disproportionate the forfeiture may seem in relation to the actual damage suffered by the Government.” Id. at 499. Consequently, the government would have received “a recovery wholly out of proportion to actual loss” and we observed further that the bank employee was additionally liable for criminal pеnalties. Id. at 500. In light of the disproportionate civil sanctions at issue, we sought guidance in the vicarious liability principles that govern criminal law. See id. at 498-500 (citing RESTATEMENT (SECOND) OF AGENCY §§ 217D cmt. d, 235 (1958)). We incorporated the criminal standard into the civil FCA in part, holding “that the knowledge or guilty intent of an agent not acting with a purpose to benefit his employer, will not be imputed to the employer, when the latter is sought to be held liable under a statute requiring knowledge or guilty intent.” Id. at 499-500.
We have elaborated little on the holding in Ridglea nor have we applied it to any
Moreover, since Ridglea, the Supreme Court has provided additional guidance in evaluating the elements required to assert vicarious liability under federal civil suit provisions. In ASME, 456 U.S. at 558-59, the Court addressed whether ASME, a non-profit engineering standard-setting body, could be held liable under the Sherman Antitrust Act for the fraudulent activity of members of one of its subcommittees, “performed with apparent authority.” The Court reiterated “that under general rules of agency law, principals are liable when their agents act with apparent authority and commit torts analogous to the antitrust violation presented by this case,” including when “the agent acts solely to benefit himself.” Id. at 565-66; see also id. at 567 (“The apparent authority theory has long been the settled rule in the federal system.“). Turning to the antitrust law‘s statutory purpose, the Court found that “the apparent authority theory is consistent with the congressional intent to encourage competition.” Id. at 570. It also noted that requiring an employee act to benefit the employer before imputing liability would stymie the law‘s purpose. Id. at 573-74. The Court further rejected the petitioner‘s reliance on Ridglea to argue the antitrust statute‘s treble damages remedy was punitive such that it triggered more restrictive vicarious liability rules. Id. at 574-76 & n. 14. The Court acknowledged that the treble damages provision was “designed in part to punish past violations,” but stated that it functioned “primarily as a remedy for the victims” and also as a deterrent. Id. at 575. It concluded: “Since treble damages serve as a means of deterring antitrust violations and of compensating victims, it is in accord with both the purposes of the antitrust laws and principles of agency law to hold ASME liable for the acts of agents committed with apparent authority.” Id. at 575-76. Under ASME, we must construe federal civil remedies statutes in harmony with the common law apparent authority rule for
Applying those principles, we first find
The second false assumption underlying Acme‘s argument is that the increased cost of the Government is necessarily equal to the amount of the kickback which is recoverable. Of course, a subcontractor who must pay a kickback is likely to include the amount of the kickback in his contract price. But this is not all. A subcontractor who anticipates obtaining a subcontract by virtue of a kickback has little incentive to stint on his cost estimates. Since he plans to obtain the subcontract without regard to the economic merits of his proposal, he will be tempted to inflate that proposal by more than the amount of the kickback. And even if the Government could isolate and recover the inflation attributable to the kickback, it would still be saddled with a subcontractor who, having obtained the job other than on merit, is perhaps entirely unreliable in other ways. This unreliability in turn undermines the security of the prime contractor‘s performance—a result which the public cannot tolerate, especially where, as here, important defense contracts are involved.
Acme Process Equip. Co., 385 U.S. at 144-45; see also ASME, 456 U.S. at 575 (noting the treble damages provision at issue helped compensate for the costs in bringing a private suit). We discern no persuasive evidence of congressional intent in
Nor does
CONCLUSION
Accordingly, we REVERSE the district court‘s ruling granting KBR‘s motion to dismiss for failure to state an AKA claim under
E. GRADY JOLLY, Circuit Judge, concurring in the judgment:
The majority in this case purports to engage in statutory interpretation while failing to address critical words of the statute. Thus, while I concur in the outcome the majority reaches, I do not join in their analysis.
The question presented in this appeal is whether
To engage in proper statutory interpretation, we must address the phrases describing “person” before discerning whether vicarious liability is available under
This requirement, in turn, compels us to ask when we may say that a corporation has “knowingly” become part of kickback activity. Due to the nature of corporations, any knowledge attributed to a corporation must necessarily be imputed to that corporation from some individual person. See F.D.I.C. v. Ernst & Young, 967 F.2d 166, 171 (5th Cir.1992); FLETCHER § 787. “[A] court may deem only the knowledge of officers and employees at a certain level of responsibility imputable to the corporation.” FLETCHER § 790. And “[w]hether an individual‘s knowledge will be imputed to the corporation depends on a factual determination, according to the particular circumstances, of the individual‘s position in the corporate hierarchy; the person need not necessarily be either a shareholder or аn officer.” FLETCHER § 807; F.D.I.C., 967 F.2d at 171 (“Where the level of responsibility begins must be discerned from the circumstances of each case.” (quoting Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365, 1376 (5th Cir.1983))). But “knowledge of a mere employee of the corporation ordinarily is not imputed to the company.” FLETCHER § 807; F.D.I.C., 967 F.2d at 171 (noting the “knowledge of individuals at a certain level of responsibility must be deemed ... knowledge of the organization” (quoting Continental Oil, 706 F.2d at 1376) (emphasis added)); In re Hellenic Inc., 252 F.3d 391, 395 (5th Cir.2001) (“While courts generally agree that the knowledge of directors or key officers, such as the president and vice president, is imputed to the corporation, they differ as to the effect of knowledge acquired by other employees.“); Kellogg Brown & Root Servs., Inc. v. United States (KBR II), 103 Fed. Cl. 714, 773-74 (2012) (finding two mid-level managers had insufficient authority to impute their knowledge to KBR for purposes of
At this point, it is important to recognize that, in corporate law, “The acts of a corporation‘s vice-principals are considered to be the acts of the corporation itself and are
This conclusion as to the meaning of
Furthermore, as the majority notes, “[i]t is entirely consistent for the statute to punish knowing violations more severely than those of which the corporation was unaware.” See KBR II, 103 Fed. Cl. at 773. And because knowing violations of
Accordingly, a thoroughly-conducted statutory analysis demonstrates that
In conclusion, I agree with the majority‘s ultimate decision to remand this case for further factual development, but disagree with its analysis, as it does not comport with basic tenets of statutory interpretation.