Lead Opinion
We are asked to decide a question of first impression in interpreting the Anti-Kickback Act (the “AKA” or the “Act”), 41 U.S.C. §§ 51-58.
For the reasons outlined below, we conclude the district court erred in finding that § 55(a)(1) does not allow the government to allege vicarious liability. We REVERSE its ruling granting KBR’s motion to dismiss the government’s AKA claim under Federal Rule of Civil Procedure 12(b)(6) and REMAND for further proceedings.
FACTS AND PROCEEDINGS
In 2001, KBR secured a contract to provide global logistical services to the United
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 subcontractors 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 wеll as other EGL employees acting on Smoot’s instructions, on at least ninety-three occasions. The benefits ranged from “meals, drinks, golf outings, tickets to rodeo events, baseball games, football games, and other gifts and entertainment.” Between 2003 and 2006, Panalpina’s account- representative for the LOGCAP III subcontracts, Grant Watt-man, and other Panalpina employees acting at Wattman’s behest, provided Bennett and KBR colleagues kickbacks on fifty-five occasions in the form of “meals, drinks, golf outings, and other gifts and entertainment.”
This civil action commenced when two private individuals brought a qui tarn 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 rеlevant to the present appeal, KBR argued the government failed to state a claim for civil liability under the AKA, because 41 U.S.C. § 55(a)(1) does not permit vicarious liability. In the alternative, it contended the complaint failed to allege sufficient facts to attribute Bennett’s and his transportation department colleagues’ conduct to KBR. The district court granted the motion to dismiss the AKA count for failure to state a claim, finding that “the plain language of § 55(a) indicates that corporate vicarious liability” does not extend to violations of § 55(a)(1). It further noted that “[b]ecause the United States has not sufficiently alleged that KBR employees were acting for the corporation’s benefit, imputation [of vicarious liability] is not appropriate in this case.”
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.,
DISCUSSION
We begin with a brief description of the relevant provisions of the AKA, before reaching the two merits issues raised on appeal: whether § 55(a)(1) provides for vicarious liability, and, if it does, whether the government sufficiently imputes liability to KBR in its complaint.
A. The Anti-Kickback Act’s, Civil Lia; bility Provisions
“In the idiom of economic crime, a ‘kickback’ is a kind of commercial bribe.” United States v. Purdy,
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.
41 U.S.C. § 52(2). It states that:
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.
§ 53. The AKA defines “person” to include both an “individual” and “a corporation, partnership, business association of any
The case turns on interpreting the civil liability provisions of the AKA, codified at 41 U.S.C. § 55(a). Section 55(а), “Civil Actions,” provides:
(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.
41 U.S.C. § 55(a). Section 55(a)’s present civil liability provisions are the product of the Anti-Kickback Enforcement Act of 1986, a series of amendments intended “to strengthen the prohibition of kickbacks relating to subcontracts] under Federal Government contracts.” Pub.L. No. 99-634, 100 Stat. 3523. Previously, the government could recover only the value of a kickback and could obtain relief only from the kickback’s recipient or the subcontractor who provided it. See 41 U:S.C. § 51 (1982). The 1986 amendments reshaped the civil damages remedies by permitting, in § 55(a)(1), recovery of double damages and per-occurrenee penalties from knowing violators of the Act. See Pub.L. No. 99-634, § 5, 100 Stat. 3523; H.R.Rep. No. 99-964, at 10 (1986), reprinted in 1986 U.S.C.C.A.N. 5960, 5967.
B. Whether § 55(a)(1) Permits Holding Employers Vicariously Liable
We turn to whether the government may ever bring a suit under § 55(a)(1) alleging an employer is vicariously liable for the kickback-related conduct of its employees.
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 § 55(a)’s subsections allow the government to “recover from a person.” See § 55(a) (emphasis added). Congress defined “person” broadly in the AKA, to include corporations and other business entities. 41 U.S.C. § 52(3); see also Vt. Agency of Natural Res. v. United States ex rel. Stevens,
Congress’s decision to provide for vicarious liability under both subsections does not render § 55(a)(2) superfluous. Under § -55(a)(1), the government must prove a “knowing! ]” violation before it may obtain double damages and per-occurrence recoveries. See § 55(a)(1). Section 55(a)(2) requires no proof of “knowing” misconduct before allowing recovery of “a civil penalty equal to the amount of th[e] kickback.” See § 55(a)(2). Like the Court of Federal Claims, we find “[i]t is entirely consistent for the statute to punish knowing violations more severely than those of which the corporation was unaware.” See Kellogg Brown & Root Servs., Inc. v. United States (KBR II),
We add that we appreciаte 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,
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 § 55(a)(1) because, it had “not sufficiently alleged that KBR employees were acting for the corporation’s benefit.” The district court relied on our decision in Ridglea,
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.
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 penalties. 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 (Sеcond) 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,
Applying those principles, we first find § 55(a)(1) is meaningfully distinct from the provisions we analyzed in Ridglea. The per-occurrence penalty in the AEA, unlike the mandatory $2000 forfeiture at issue in Ridglea, is not obligatory upon finding the defendant liable. The Act provides that the government “may recover ... not more than $[11,000] for each occurrence of prohibited conduct,” § 55(a)(1) (emphasis added). Courts retain the discretion to tailor the size of the per-occurrence penalty they award under § 55(a)(1) to fit the facts of the case. See United States v. Lippert,
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.,
Nor does § 55(a)(1), with its caps on the damages the government may recover, bear the hallmarks of a punitive damages provision. See Restatement (First) of Torts § 908 (1939) (providing that punitive damages are “awarded against a person to punish him for his outrageous conduct,” and “their allowance and amount are within the discretion of the trier of fact”). That dissimilarity is significant because the Restatement (Second) of Agency cautions that the punitive damages rule “stated in this Section does not apply to the interpretation of special statutes such as those giving triple damages, as to which no statement is made.” Restatement (Second) of Agency ' § 217C cmt. c (1958). Likewise, the Supreme Court has observed that while the treble damages and civil forfeitures provisions in the FCA may be punitive in some respects, “[tjreble damages certainly do not equate with classic punitive damages, which leave the jury with open-ended discretion over the amount.” Cook Cnty. v. United States ex rel. Chandler,
Accordingly, we REVERSE the district court’s ruling granting KBR’s motion to dismiss for failure to state an AKA claim under § 55(a)(1), and we REMAND for further proceedings in accordance with this opinion.
Notes
. As the parties both note, after this litigation commenced, Congress re-codified the AKA without substantive change, placing it at 41 U.S.C. §§ 8701-07. See Public Contracts— Enact Certain Laws, Pub.L. No. 111-350, § 3, 124 Stat. 3677, 3838-41 (2011). Because the parties and the district court all continue to cite the prior-labeled statutory sections of the Act, we maintain that convention.
. As this case reaches the court on the district court’s grant of a motion to dismiss, we ac
. Bennett and Smoot subsequently pleaded guilty to federal criminal charges related to the kickbacks that were brought under the AKA’s criminal provision, 41 U.S.C. § 54.
. A "prime contract" is "a contract or contractual action entered into by the Federal Government to obtain supplies, materials, equipment, or services of any kind.” 41 U.S.C. § 52(4).
. A "subcontract” is defined as "a contract ot contractual action entered into by a prime contractor or subcontractor to obtain supplies, materials, equipment, or services of any kind under a prime contract.” 41 U.S.C. § 52(7).
. Acting under the authority, of the Federal Civil Monetary Penalties Inflation Adjustment Act of 1990, 28 U.S.C. § 2461 (2006), the Department of Justice increased the amount of the penalty in § 55(a)(1)(B) from $10,000, its original statutory amount, to $11,000. 28 C.F.R. § 85.3(a)(13).
. For ease of reference, we label § 55(a)(1)(A) the "double damages penalty," as it permits recovery of twice the kickback amount. See § 55(a)(1)(A). We call § 55(a)(1)(B) the "per-occurrence penalty,” under which the government also may secure up to $11,000 for each violation. See § 55(a)(1)(B).
.On appeal, KBR does not dispute that § 55(a)(1) allows vicarious liability under some circumstances. It has waived, therefore, any argument that the provision does not permit imputing vicarious liability. See Audler v. CBC Innovis Inc.,
. The statutory text yields a clear result, so we need not examine the legislativе history on which the government also relies. See In re Amy Unknown,
. The Restatement further defines the term "scope of employment,” providing that:
(1) Conduct of a servant is within the scope of employment if, but only if:
(a) it is of the kind he is employed to perform;
(b) it occurs substantially within the authorized time and space limits;
(c) it is actuated, at least in part, by a purpose to serve the master, and (d)if force is intentionally used by the servant against another, the use of force is not unexpectable by the master.
(2) Conduct of a servant is not within the scope of employment if it is different in kind from that authorized, far beyond the authorized time or space limits, or too little actuated by a purpose to serve the master.
Restatement (Second) of Agency § 228 (1958).
. We applied Ridglea to civil FCA suits in United States ex rel. Taylor-Vick v. Smith,
. As the government references, other courts have read ASME and subsequent amendments to the FCA to cast doubt on the act-to-benеfit requirement even in the FCA context in which we distilled it. See United States v. O’Connell,
. Nor has a case been'-offered for the proposition that designating the recovery in § 55(a)(1) a "penalty” renders the double damages and per-occurrence penalties punitive in purpose for determining vicarious liability. To the contrary, § 55(a)(2) calls its recovery of value “equal to the amount of the kickback,” a “civil penalty” as well. See § 55(a)(2).
. We emphasize that, as this case progresses on remand, the government must of course provide evidence that KBR officials acted under apparent authority in accepting kickbacks before the government may prove a knowing violation of § 55(a)(1) by KBR. Under that standard, it is clear that KBR cannot be exposed to an unexpected flood of liability for nefarious acts of any and every member of its
Concurrence Opinion
concurring in the judgment:
The majority in this ease purports to engage in statutory interpretation while failing to аddress 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 § 55(a)(1) allows for vicarious liability. Upon finding § 55(a)(1) imposes liability on a “person,” the majority quickly concludes the answer is yes. Though this conclusion may be correct, the majority reaches this holding without adequately considering the remainder of provisions § 55(a)(1) and (2). This analytical step is in error, as the type of “person” from which the government may recover differs under § 55(a)(1) and (2) — and in neither provision is a “person” unencumbered. Namely, § 55(a)(1) allows recovery “from a person that knowingly engages in conduct prohibited by section [53] of this title,” while § 55(a)(2) provides for recovery from a person “whose employee, subcontractor, or subcontractor employee violates section [53] of this title[.]” § 55(a)(1) & (2).
To engage in proper statutory interpretation, We "must address the phrases describing “person” before discerning whether vicarious liability is available under § 55(a)(1). The majority correctly notes that corporations are generally considered persons for statutory purposes. Accordingly, if we stop reading after “person,” § 55(a)(1) does, by its plain terms, encompass the acts of employees. But if we read the entire provision, the question becomes: which employees? Section 55(a)(1) tells us that only “person[s] that knowingly ” take kickbacks are covered. § 55(a)(1) (emphasis added). Here, “knowingly” modifies “person” — making it a qualifier essential to determining whethеr vicarious liability may arise. The government may not, under this provision, recover from any persons (or corporations), but only those who act with the requisite knowledge. Under the facts of this case, the knowledge requirement means that, when a corporation is being sued, the corporation (i.e., person) itself must have knowledge of the kickback before liability may arise.
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
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 imputed to .the corporation. Thus, the liability of a corporation for the acts of its vice-principals is direct rather than vicarious.” Fletcher § 4877. In certain situations, then, § 55(a)(1) may not be punishing vicarious, but rather direct, liability. Because corporate law further tells us that knowledge of employees other than vice-principals may be imputable to a corporation, however, .§ 55(a)(1) may also impose vicarious liability — but it does so only when the knowledge of the employee is imputable to the corporation, not in all circumstances. See Fletcher, § 807 (noting individuals whose knowledge has been found imputable to the corporation include, among several others, vice-principals, managers, treаsurers, attorneys, stockbrokers, and company physicians). This distinction between “direct” and vicarious liability is another reason it is error to assume § 55(a)(1) allows for vicarious liability without determining what it means for a corporation to “knowingly” engage in kickback activity.
This conclusion as to the meaning of § 55(a)(1) leads us to the next step in the statutory analysis: asking whether a corporation’s liability differs under § 55(a)(1) and § 55(a)(2). In other words, we ask whether this plain reading of the text affords individual expression to both subsections. A careful analysis of the liability available under each subsection illustrates that the answer to this question is yes. Under § 55(a)(1), the government must prove a “knowing[]” violation before it may obtain double damages and per-oceurrence recoveries. See § 55(a)(1). Section 55(а)(2), to the contrary, requires no proof of “knowing” misconduct before allowing recovery of “a civil' penalty equal to the amount of th[e] kickback.” See § 55(a)(2). Instead, it imposes traditional strict liability upon corporations for the acts of their employees. Traditionally, corporations are
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,
Accordingly, a thoroughly-conducted statutory analysis demonstrates that § 55(a)(1) permits the government to attribute liability to corporate defendants vicariously in cases where the knowledge of the employees is imputable to the corporation. Before concluding, I would observe that whether an employee has sufficient responsibility or authority to impute his knowledge to the corporation is a highly fact-intensive analysis. See Fletcher, § 807; F.D.I.C.,
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.
. This corporate'knowledge .requirement is a factor distinguishing § 55(a)(1) and § 55(a)(2) — because we can assume a person who is being bribed always knows he is being bribed, the knowledge requirement would not . add to this provision if it applied to employees rather than to the corporation itself. Moreover, that § 55(a)(1) applies to a "person” while § 55(a)(2) applies to a person’s "employee, subcontractor, or subcontractor employee” further supports this plain reading of the text, which requires knowledge of the person (i.e., corporation) itself.