VERIDYNE CORPORATION, Plaintiff-Cross-Appellant, v. UNITED STATES, Defendant-Appellant.
2013-5011, -5012
United States Court of Appeals for the Federal Circuit
July 15, 2014
Decided: July 15, 2014
MARC LAMER, Kostos and Lamer, P.C., of Philadelphia, Pennsylvania, argued for plaintiff-cross-appellant.
ROBERT E. CHANDLER, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were STUART F. DELERY, Acting Assistant Attorney General, JEANNE E. DAVIDSON, Director, STEVEN J. GILLINGHAM, Assistant Director, and DOUGLAS T. HOFFMAN Trial Attorneys.
Before DYK, CLEVENGER, and WALLACH, Circuit Judges.
Veridyne Corporation (“Veridyne“) sued to recover on its contract with the government. The Court of Federal Claims (“Claims Court“) held that Veridyne‘s contract claim was forfeited under the Forfeiture of Fraudulent Claims Act,
BACKGROUND
The contract in question was awarded pursuant to the Small Business Administration‘s (“SBA“) 8(a) program.
In March 1995, MARAD awarded to the SBA an indefinite delivery, indefinite quantity cost-plus-award-fee contract for services related to MARAD‘s logistics program. Later that month, the SBA awarded a subcontract containing the same terms as its contract with MARAD to Veridyne for one base year and up to four option years. The subcontract required Veridyne to provide services to MARAD “as needed in accordance with authorized written work orders.” Pl.‘s App‘x (“P.A.“) 10, 363. MARAD paid Veridyne $20,324,289.15 for the services performed under the initial contract period.
In late 1997 or early 1998, Veridyne approached MARAD about extending the contract. MARAD was satisfied with Veridyne‘s performance and preferred to work with Veridyne rather than switch to another SBA-qualified business. Veridyne wanted to extend the contract before Veridyne graduated from the 8(a) program in June 1998. At the time, if the new contract award price exceeded $3 million, it would be subject to open competition between SBA-qualified businesses and could not be awarded as a sole-sоurce contract.
In March 1998, Veridyne submitted a proposal to MARAD for a new indefinite delivery, indefinite quantity, cost-plus-award-fee contract. Correspondence between Veridyne and MARAD before the submission specified
Similarly, although some MARAD officials did not believe that the $3,000,000 estimated cost represented the actual value of the services described in the proposal, other offiсials openly conceded that Veridyne had explicitly written the proposal “to remain within SBA‘s $3,000,000 threshold.” P.A. 204. The Claims Court concluded that “MARAD personnel knew that the $3 million amount was merely a pretext to get around having to award [the new contract] subject to competition.” P.A. 60; see also P.A. 11 (“MARAD contracting officials knowledgeable in approving the proposal vehicle and fully aware of the need to befog the SBA in order to obtain its approval actively participated in securing that approval.“).
By 1999, even though the stated cost of Mod 0023 was about $3,000,000, MARAD‘s projected internal logistics budget for the years covered by Mod 0023 and the final year of the original Contract was $35,974,779. The work orders issued to Veridyne far exceeded the scope of Mod 0023. From 2001 to 2004, MARAD issued additional work orders to Veridyne, Veridyne completed the work, and MARAD paid Veridyne $31,134,931.12 for this work. The government does not now seek to recover these payments.
In part due to MARAD‘s cost оverruns, the Department of Transportation Office of Inspector General began investigating the execution of Mod 0023 in July 2003. By September 2004, the Inspector General concluded that Veridyne had obtained Mod 0023 through fraud. In October 2004, MARAD‘s Chief Counsel instructed MARAD officials that “[e]ffective immediately, MARAD is to make no payments to Veridyne on any contract without express approval by me.” P.A. 337. MARAD did not notify Veridyne until December 2004, when MARAD issued a stop order suspending contract performance and informed Veridyne of its view that Mod 0023 was void ab initio. At the time of the December stop order, invoices
On June 13, 2005, Veridyne submitted invoices 260-267 as certified claims pursuant to the Contract Disputes Act (“CDA“),
Insofar аs is pertinent to this appeal, the government entered a defense under the Special Plea in Fraud statute,
After a trial on the merits, the Claims Court rendered a somewhat confusing opinion. It concluded that because Veridyne‘s invoices contained false information, its direct contract clаims were forfeited under the Special Plea in Fraud statute. But the Claims Court also concluded that because Veridyne had conferred a benefit on the government by performing the contract, it could recover in quantum meruit. The Claims Court determined that Veridyne was owed $1,068,636.22 in quantum meruit for the work performed before MARAD issued the stop order.
The government appealed the Claims Court‘s quantum meruit award. Veridyne did not appeal the Claims Court‘s forfeiture finding on its direct contract claim. However, Veridyne cross-appealed the Claims Court‘s imposition of penalties under the FCA and the CDA. We have jurisdiction pursuant to
I. VERIDYNE‘S AFFIRMATIVE RECOVERY IN QUANTUM MERUIT
The Special Plea in Fraud Statute provides:
A claim against the United States shall be forfeited to the United States by any person who corruptly practices or attempts to practice any fraud against the United States in the proof, statement, establishment оr allowance thereof.
In such cases the United States Court of Federal Claims shall specifically find such fraud or attempt and render judgment of forfeiture.
Even though the Claims Court found that Veridyne had forfeited its affirmative contract claim, it awarded quantum meruit recovery to Veridyne for the value of the services performed by Veridyne before MARAD‘s stop order. The Claims Court relied on United States v. Amdahl Corp., 786 F.2d 387, 393 (Fed. Cir. 1986), stating that “binding Federal Circuit precedent permits a contractor to recover for services already rendered where the situation does not involve a bribe or conflict of interest.” P.A. 45; see also P.A. 38-39. On appeal, the government argues that it was improper for the Claims Court to allow Veridyne to recover in quantum meruit when its claims
One of our predecessor courts, the Court of Claims, decided this issue in Mervin Contracting Corp. v. United States, 94 Ct. Cl. 81, 87 (1941). There, the court found that the contractor‘s claim was forfeited for fraud. Id. at 86. The court held that quantum meruit recovery was unavailable to the contractor, finding that the contract claim and the quantum meruit claim “were for the same services, and the claims for those services were forfeited, regardless of the theory or form in which the claims were asserted. The second causes of action in quantum mеruit are therefore no more enforceable than the first causes of action based on the express contracts.” Id. at 86-87. The Court of Claims in Little v. United States followed Mervin, recognizing that, “where, as in the present case, fraud was committed in regard to the very contract upon which the suit is brought, this court does not have the right to divide the contract and allow recovery on part of it.” 152 F. Supp. 84, 87-88 (Ct. Cl. 1957).
The legislative history of the Special Plea in Fraud Statute confirms the correctness of the Mervin decision. The Special Plea in Fraud Statute was originally enacted as part of the Court оf Claims Act in 1863, which expanded the jurisdiction of the Court of Claims to include “private claims against the Government, founded upon any law of Congress, or upon any regulation of an executive department, or upon any contract, express or implied, with the Government” and gave it the power to issue final judgments. Court of Claims Act of 1863, §§ 2-3, 12 Stat. 765, 765 (1863). One particular concern was that expanding the Court of Claims‘s jurisdiction would enable litigants to perpetrate fraud on the government. Vol. 32 pt. 2 Cong. Globe, 37th Cong., 2d Sess. 1671, 1672 (1862). In the floor debate, bill sponsors explаined that the special plea provision was intended “to give [the claimants] to
Neither the Amdahl case, relied on by the Claims Court, nor Miller v. United States, 550 F.2d 17, 25-26 (Ct. Cl. 1977), cited by Veridyne, counsels an alternative result. In Amdahl, pursuant to the Brooks Act, Pub. L. No. 89-306 (codified as amended at
Therefore, we reverse the Claims Court‘s award of $1,068,636.22 for quantum meruit recovery to Veridyne.
II. THE GOVERNMENT‘S FALSE CLAIMS ACT COUNTERCLAIM
Under the FCA, “[a]ny person who ... knowingly presents” to the government “a false or fraudulent claim for payment or approval” “is liable to the United States Government for a civil penalty of not less than $5,000 and not more than [$11,000], plus 3 times the amount of damages which the Government sustains.”
The Claims Court found that Veridyne‘s proposal to MARAD for the extension of the contract, the Mod 0023 proposal, was a false claim because it misrepresented the cost of the services that Veridyne agreed to provide in the proposal. The Claims Court awarded the government the maximum penalty for each of the 127 invoices submitted pursuant to Mod 0023 for a total penalty of $1,397,000.00.
Veridyne first argues that its proposal did not contain false statements because “the costs established in Modification 0023 were never intended to reflect MARAD‘s
Second, Veridyne argues that even if the proposal сontained false statements, Veridyne did not have the requisite intent to defraud MARAD because MARAD knew that these statements were false, relying on United States ex rel. Ubl v. IIF Data Solutions, 650 F.3d 445, 452-53 (4th Cir. 2011), United States ex rel. Durcholz v. FKW, Inc., 189 F.3d 542, 544-45 (7th Cir. 1999), United States ex rel. Hagood v. Sonoma County Water Authority, 929 F.2d 1416, 1421 (9th Cir. 1991).
Although Veridyne may be correct that MARAD had knowledge that the Mod 0023 proposal contained false statements, the FCA inquiry does not end with MARAD‘s knowledge. Veridyne‘s contract was with the SBA, not with MARAD. And it is undisputed that “[n]o evidence of
Even though the Mod 0023 proposal was never sent to the SBA, SBA was aware of and relied on the fraudulent cost data in the proposal. When MARAD requested permission from SBA for the extension of the Contract with Veridyne, it transmitted the false statements and figures from Veridyne‘s Mod 0023 proposal, stating that “[t]he total estimated amount of this requirement is $3,000,000” and assuring SBA that “[t]he acquisition for the incumbent [Veridyne] will be a follow-on or renewal contract with no change in the scope of work.” Resp. to Panel Req., Attachment A at 2-3, May 7, 2014, ECF No. 73 (emphasis added). Even if Veridyne believed that MARAD officials were not misled by its proposal, it is clear that these false statements, certified as true by Veridyne, misled the SBA to enter the contract with Veridyne and that Veridyne intended that the SBA rely on the false statements. As a result, Mod 0023 was infected with fraud.
Third, Veridyne argues that even if the Mod 0023 proposal was procured by fraud, the invoices submitted pursuant to Mod 0023, on which the FCA penalties were based, did not contain any false statements and cannot support FCA penalties. Veridyne‘s сontentions are unavailing. The Supreme Court has held that claims submitted pursuant to a fraudulently obtained contract are FCA violations even if the claims themselves do not contain false statements. United States ex rel. Marcus v. Hess, 317 U.S. 537, 543-44 (1943), superseded by statute on other grounds as recognized by Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885, 1893-94 (2011). In Marcus, the electrical contractors, in obtaining
Veridyne also contends that these 127 invoices were only submitted to MARAD, not to the SBA, and therefore, these invoices were not sent to the contracting party. Marcus held it irrelevant that the contractors’ false claims were made to the bank holding federal funds and not to the federal government directly; it is not necessary that the SBA be misled with respect to each of the 127 invoices. Marcus, 317 U.S. at 543-44. It is equally irrelevant here that Veridyne submitted its claims for payment to MARAD rather than the SBA directly, when the claims would be paid from federal funds.
We affirm the Claims Court‘s award of $11,000 for each FCA violation, or $1,397,000.00 for Veridyne‘s 127 false claims.
III. THE GOVERNMENT‘S CONTRACT DISPUTES ACT COUNTERCLAIM
The Contract Disputes Act requires that an authorized corporate official certify that “the claim is made in good faith, that the supporting data are accurate and complete to the best of his knowledge and belief, [and] that the amount requested accurately reflects the contract adjustment for which the contractor believes the government is liable.”
[i]f a contractor is unable to support any part of his claim and it is dеtermined that such inability is attributable to misrepresentation of fact or fraud on the part of the contractor, he shall be liable to the Government for an amount equal to such unsupported part of the claim.
A “misrepresentation of fact” is “a false statement of substantive fact, or any conduct which leads to a belief of a substantive fact material to proper understanding of the matter in hand, made with intent to deceive or mislead.”
MARAD relied on Veridyne‘s submitted invoices to show how funds for the contract were allocated so that they could be paid. The Claims Court found that invoice 265 was unsupported because Veridyne misrepresented MARAD‘s own allocation of funds and falsely communicated to MARAD that MARAD had sufficient funds to pay invoice 265. Veridyne argues that it had no opportunity to confirm its fund allocation with MARAD because MARAD had stopped communicating with Veridyne before invoice 265 was submitted. But the failure of MARAD to communicate with Veridyne does not excuse Veridyne‘s conduct.
Veridyne‘s misrepresentations in invoices 266 and 267 are equally clear. A CDA claim requires a certification that the claimant has acted in good faith in claiming compensation for work performed.
[t]he overhead rate ... is anticipated to be no greater than [the historic 64.5% overhead rate] in years 4 & 5 of the current contract vehicle .... For this current proposal, [Veridyne] will bid and cap the overhead rates at 64.4%, 62.5%, 61%, 58%, and 56% for Option Years 5, 6, 7, 8, and 9 respectively.
P.A. 147-48. Therefore, Veridyne was not entitled to payment at the higher overhead rate, and invoicing at that rate was a misrepresentation.
Finally, we consider whether а single claim can be the source of liability under both the FCA and the CDA, as the Claims Court found here. We have previously considered this question, and have held that the same false act in “[a] certified claim may be a source of liability under both the Contract Disputes Act and the False Claims Act.” Daewoo, 557 F.3d at 1340-41 (citing UMC Elecs. Co. v. United States, 249 F.3d 1337, 1339-40 (Fed. Cir. 2001)); Commercial Contractors, 154 F.3d at 1375.
Therefore, we hold that the Claims Court did not err in finding that invoices 265-267 were unsupported, and affirm the Claims Court‘s award of $568,802.09 to the government as a CDA penalty.
CONCLUSION
We affirm the Claims Court‘s award of $1,965,802.09 to the government on its FCA and CDA counterclaims.4 We reverse the Claims Court‘s award оf $1,068,636.22 to Veridyne under a quantum meruit theory.
AFFIRMED-IN-PART, REVERSED-IN-PART
Costs to the United States.