United States Ex Rel. Bettis v. Odebrecht Contractors of California, Inc.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 22, 2004 Decided January 11, 2005

No. 04-5051

UNITED STATES OF AMERICA EX REL . ALVA BETTIS,

APPELLANT

v.

ODEBRECHT CONTRACTORS OF CALIFORNIA, INC., ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 99cv02879)

Herbert V. McKnight, Jr. argued the cause for appellant.

With him on the briefs was Altomease R. Kennedy.

Howard S. Scher, Attorney, U.S. Department of Justice,

argued the cause for amicus curiae the United States of America

in support of appellant in part. With him on the brief were Peter

D. Keisler, Assistant Attorney General, Kenneth L. Wainstein,

U.S. Attorney, and Douglas N. Letter, Counsel.

Samuel J. Waldon argued the cause for appellees. With him

on the brief was Ryan E. Bull. David A. Super entered an

appearance.

2

Before: EDWARDS, SENTELLE, and GARLAND, Circuit

Judges.

Opinion for the Court filed by Circuit Judge EDWARDS.

EDWARDS, Circuit Judge: Under the qui tam provisions of

the False Claims Act (“FCA” or “Act”), 31 U.S.C. §§ 3729-

3733 (2000), any person may initiate a lawsuit in the name of

the United States for substantive violations of the Act. The

United States, through its relator Alva Bettis (“Bettis”), brought

this action in the District Court against Odebrecht Contractors

of California, Inc., et al. (“Odebrecht”), alleging that Odebrecht

submitted false claims to the Government in connection with a

public works construction contract it had with the U.S. Army

Corps of Engineers (“Corps”).

In advancing his claim, Bettis relies on the fraud-in-the-

inducement theory of liability under the FCA. Under that

theory, every claim submitted under a fraudulently induced

contract constitutes a “false claim” within the meaning of the

Act (i.e., is automatically tainted), even without proof that the

claims were fraudulent in themselves. Bettis argues that

Odebrecht fraudulently induced the Corps to award it the

disputed contract by submitting an intentionally undervalued bid

and making other false representations in order to win the

contract, with the intention of subsequently obtaining upward

modifications to the contract price.

The District Court granted summary judgment for

Odebrecht, relying on two alternative grounds. First, the court

rejected Bettis’s fraud-in-the-inducement claim as a matter of

law. The court held that, where it is alleged that the defendant

has submitted a fraudulently deflated bid in order to obtain a

contract, a FCA action cannot succeed without proof that one or

more requests for payment under the contract were fraudulent in

themselves. The United States, as amicus curiae, contests the

District Court’s legal analysis on this point, arguing that the

3

fraud-in-the-inducement theory of FCA liability properly applies

to allegations of fraudulently deflated bids. In the alternative,

the District Court concluded that, as a matter of fact, the

evidence presented by Bettis was insufficient to permit the

inference that Odebrecht fraudulently induced the Corps to

award it the contract.

We conclude that the evidence presented by Bettis would

not permit a reasonable jury to conclude that Odebrecht

fraudulently induced the Government to award it the contract.

We therefore affirm the judgment of the District Court on this

ground alone.

I. BACKGROUND

On March 1, 1993, the U.S. Army Corps of Engineers

(“Corps”) solicited bids for construction of the Seven Oaks Dam

and Appurtenances in San Bernardino County, California. In

preparing the solicitation, the Corps divided the construction

into 150 separate tasks, referred to as bid items, and estimated

the quantity of each bid item that would be required during

construction. Contractors prepared a unit price for each bid item

that included any indirect costs (e.g., labor, equipment,

overhead) and a profit margin. The final price for each bid was

calculated by multiplying the bidder’s unit price for each bid

item by the Corps’ quantity estimate and then summing the

totals of all of the bid items. The final bid price was only an

estimate, because the winning bidder was to be paid based on

the actual quantities required during construction, not the Corps’

estimated quantities. Bidders were, however, bound by their

unit prices and assumed the risk if these prices turned out to be

too low.

Odebrecht submitted a bid of $167,777,000. The sealed

bids were opened on July 7, 1993, and Odebrecht’s bid was the

lowest, coming in about $29 million below the second lowest

bid, which had been submitted by a joint venture involving

4

Tutor-Saliba Corporation and others (“Tutor-Saliba”), and

almost $36 million below the Corps’ cost estimate (without

profit) of $203,771,540.

Tutor-Saliba commenced a series of bid protests seeking to

prevent Odebrecht from being awarded the contract. On March

29, 1994, following the resolution of the bid protests, Odebrecht

was awarded the contract. The Corps issued Odebrecht a notice

to proceed with construction on April 20, 1994, and Odebrecht

began construction shortly thereafter.

During the course of construction, Odebrecht requested and

received a number of “equitable adjustments” to the contract

price. Equitable adjustments are used to keep a contractor

whole when the Government modifies the contract or, under

some Government contracts, for changed circumstances. See 48

C.F.R. §§ 52.243-4, 52.243-5 (2003). They are not available for

reasons unrelated to a change, such as to compensate a

contractor who has underestimated his bid or encountered

unanticipated expenses or inefficiencies. Pac. Architects &

Eng’rs Inc. v. United States, 491 F.2d 734, 739 (Ct. Cl. 1974).

Ultimately, by August 31, 2003, the Government had paid

Odebrecht nearly $268 million, an amount that exceeded the bid

price by more than $100 million. Even so, Odebrecht maintains

that it sustained a loss in excess of $30 million on the project.

It is undisputed that the Corps was satisfied with

Odebrecht’s work on the project. Indeed, in 1999, the Corps

awarded Odebrecht its Civil Works Construction Contractor of

the Year award for Odebrecht’s “exceptional performance” on

the project.

In 1999, relator Alva Bettis, who had been employed as a

project scheduler by a consulting firm retained by the Corps to

monitor the dam’s progress, commenced this action in the

District Court, alleging that Odebrecht violated the FCA. The

complaint was filed under seal and in the name of the United

5

States, pursuant to the qui tam provisions of the FCA. See 31

U.S.C. § 3730(b). After the Government declined to exercise its

right to intervene and proceed with the action under § 3730(b),

the complaint was unsealed and served.

In June 2002, Bettis filed his Third Amended Complaint,

which included seven counts in which he claimed that

Odebrecht violated the FCA. In Count I (the only count relevant

to this appeal), Bettis pressed a fraud-in-the-inducement claim,

alleging that Odebrecht fraudulently induced the Corps to award

it the contract. Specifically, Bettis alleged that Odebrecht

violated the Act by submitting an intentionally low bid – at

which price Odebrecht knew or should have known that it could

not have completed the project – with the intention of seeking

adjustments to the price after winning the contract. On October

24, 2002, the District Court issued an order dismissing the count

without prejudice. See United States ex rel. Bettis v. Odebrecht

Contractors of Cal., Inc., Civ. A. No. 99-2879, slip op. at 4-13

(D.D.C. Oct. 24, 2002) (“Mem. Op.”), reprinted in Joint

Appendix (“J.A.”) at 39, 42-51. The court explained that the

count failed to state a claim, because Bettis failed to allege that

Odebrecht “submitted any claim for payment in excess of its bid

price,” and because a “relator cannot hold [a] defendant liable

under the FCA merely for obtaining the contract based on an

intentionally undervalued bid.” See id. at 12, J.A. at 50.

Bettis thereafter filed a Fourth Amended Complaint in

which he amended and re-alleged Count I. The amended

complaint alleged that Odebrecht violated the Act by submitting

an intentionally undervalued bid in order to win the contract

with the intention of seeking false modifications to the price,

and then submitting false modifications. Upon completion of

discovery, Odebrecht moved for summary judgment on all

counts, and Bettis moved for summary judgment on Count I.

The District Court granted summary judgment for

Odebrecht on all counts. See United States ex rel. Bettis v.

6

Odebrecht Contractors of Cal., Inc., 297 F. Supp. 2d 272

(D.D.C. 2004). Regarding Bettis’s fraud-in-the-inducement

claim, the court first held, consistent with its earlier

memorandum opinion, that Bettis’s claim failed as a matter of

law, because his claim rested on “the flawed legal argument that

he can prevail on a mere showing that [1] [Odebrecht]

fraudulently induced [the Corps] to enter into the contract by

submitting a low bid intending to seek additional monies, and

[2] that [Odebrecht] obtained monies above and beyond the

contract price.” Id. at 280-81. According to the court, as to the

second element, “there must be a claim for money to which the

contractor is not legitimately entitled” – in other words, a

showing that the actual claims submitted under the contract were

themselves fraudulent. Id. at 281 (internal quotation marks and

alterations omitted). Alternatively, the District Court held that,

even under Bettis’s legal theory, his claim failed as a factual

matter because “the facts upon which [Bettis] relies do not

permit an inference that [Odebrecht] fraudulently induced [the

Corps] to sign the contract by submitting a bid that it knew or

should have known was false, intending to seek subsequent

adjustments.” Id. at 283. Finally, the District Court concluded

that the evidence did not permit an inference that any of the

requests for adjustments submitted by Odrebrecht were

themselves false or fraudulent. See id. at 283, 290-95. This

appeal followed.

Bettis challenges the District Court’s resolution of his

fraud-in-the-inducement claim. Bettis does not challenge the

District Court’s judgment with respect to any counts other than

Count I, or with respect to the District Court’s conclusion that

none of the requests for adjustments submitted by Odebrecht

could be found fraudulent in themselves. The United States

appeared as amicus curiae for the sole purpose of contesting the

District Court’s articulation of the legal standard for establishing

a fraud-in-the-inducement claim in the context of an allegedly

fraudulent low bid.

7

II. ANALYSIS

A. Standard of Review

We review de novo a district court’s decision to grant

summary judgment, viewing the evidence in the light most

favorable to the non-moving party. Kaempe v. Myers, 367 F.3d

958, 965 (D.C. Cir. 2004). A party is entitled to summary

judgment only if there is no genuine issue of material fact and

judgment in the movant’s favor is proper as a matter of law. Id.

at 966. Put another way, a party is entitled to summary

judgment only if no reasonable jury could return a verdict for

the non-moving party. Hall v. Giant Food, Inc., 175 F.3d 1074,

1077 (D.C. Cir. 1999).

B. The False Claims Act and Fraud-in-the-Inducement

Liability Thereunder

The False Claims Act was originally enacted in 1863 to

protect the United States Government from financial loss

resulting from fraud. The Act establishes liability for any

person who:

(1) knowingly presents, or causes to be presented, to an

officer or employee of the United States Government . . . a

false or fraudulent claim for payment or approval; [or] (2)

knowingly makes, uses, or causes to be made or used, a

false record or statement to get a false or fraudulent claim

paid or approved by the Government[.]

31 U.S.C. § 3729(a). The Act imposes two types of liability.

“First, the submitter of a ‘false claim’ or ‘statement’ is liable for

a civil penalty, regardless of whether the submission of the

claim actually causes the government any damages; even if the

claim is rejected, its very submission is a basis for liability.

Second, the submitter of the claim is liable for damages that the

government sustains because of the submission of the false

claim.” United States ex rel. Schwedt v. Planning Research

8

Corp., 59 F.3d 196, 199 (D.C. Cir. 1995). The term “claim” is

broadly defined to include “any request or demand, whether

under a contract or otherwise, for money or property which is

made to a contractor, grantee, or other recipient if the United

States Government provides any portion of the money or

property which is requested or demanded.” 31 U.S.C. § 3729(c).

Although the focus of the FCA is on false “claims,” courts

have employed a “fraud-in- the-inducement” theory to establish

liability under the Act for each claim submitted to the

Government under a contract which was procured by fraud, even

in the absence of evidence that the claims were fraudulent in

themselves. See generally United States ex rel. Harrison v.

Westinghouse Savannah River Co., 176 F.3d 776, 787-88 (4th

Cir. 1999) (surveying the case law on fraud-in-the-inducement

FCA liability). The most prominent of these cases is United

States ex rel. Marcus v. Hess, 317 U.S. 537 (1943), in which

several electrical contractors were held liable under the Act for

claims submitted under a government contract obtained through

collusive bidding. The Court found that each claim was

actionable under the Act, even without proof that the claims

themselves were false:

This fraud did not spend itself with the execution of the

contract. Its taint entered into every swollen estimate which

was the basic cause for payment of every dollar paid by the

[government] . . . . The initial fraudulent action and every

step thereafter taken pressed ever to the ultimate goal –

payment of government money to persons who had caused

it to be defrauded.

Id. at 543-44.

When Congress amended the FCA in 1986, its legislative

history recognized fraud-in-the-inducement liability under the

Act. Specifically, Congress noted that, under FCA case law,

“each and every claim submitted under a contract, loan

9

guarantee, or other agreement which was originally obtained by

means of false statements or other corrupt or fraudulent conduct,

or in violation of any statute or applicable regulation, constitutes

a false claim.” S. REP . NO. 99-345, at 9 (1986), reprinted in

1986 U.S.C.C.A.N. 5266, 5274.

In this case, the District Court acknowledged that, “[i]f

construed broadly,” the fraud-in-the-inducement theory of

liability could support Bettis’s claim. Mem. Op. at 10, J.A. at

48. In this respect, the court noted that the complaint alleged

that Odebrecht made a false statement by submitting a

fraudulently low bid, which induced the Corps to enter into the

contract under which it was obligated to pay the claims that

Odebrecht eventually submitted. However, the District Court

refused to “extend” the fraud-in-the-inducement theory in this

way. While concluding that, under Hess, claims submitted

under a contract obtained after a fraudulently inflated bid are

actionable even though the claims are neither false nor

fraudulent in themselves, the court held that, where it is alleged

that the defendant has submitted a fraudulently deflated bid, it

must be shown not only that the low bid was fraudulent but also

that one or more requests for payment under the contract

induced by the low bid were themselves fraudulent. See Bettis,

297 F. Supp. 2d at 279-83; Mem. Op. at 11-12, J.A. at 49-50.

The District Court reasoned that “it would be nonsensical and

illogical” and “contrary to . . . the FCA’s goal of protecting the

public fisc to punish a defendant for submitting a low bid even

if the defendant knows or should have known that he cannot

perform at that price.” Bettis, 297 F. Supp. 2d at 280-81 (citing

Mem. Op. at 11-12, J.A. at 49-50). Unless the defendant

actually seeks false modifications to the bid price, the District

Court concluded, the Government “would actually benefit” from

the fraudulent low bid. Mem. Op. at 12, J.A. at 50 (emphasis

omitted).

10

The United States, as amicus curiae, challenges the District

Court’s analysis. The Government argues that there is no basis

in the text of the FCA for distinguishing between a fraudulently

inflated bid and a fraudulently deflated one, and maintains that

FCA liability should attach to claims under any fraudulently

induced contract. See Br. for the United States at 14-15. The

United States further claims that there are at least two reasons

why the Government might reject a low bid if it knew it was

fraudulent. First, the Government has an interest in preserving

the integrity of the bidding process. Second, a low bid carries

the risk of the bidder’s default if it wins the contract. See id. at

21-23.

We need not resolve this dispute. Because we conclude

that, on the evidence in this case, no reasonable jury could find

that Odebrecht fraudulently induced the Corps to enter into the

contract, we do not address whether a fraud-in-the-inducement

claim based on a fraudulent low bid can succeed absent proof

that one or more requests for payment under the contract

induced by the low bid were false in themselves.

C. Bettis’s Evidence of Fraud

On this appeal, Bettis claims that Odebrecht fraudulently

induced the Corps to award it the contract in three ways: (1) by

submitting a bid that did not conform with industry standards for

accuracy; (2) by falsely reaffirming its bid despite its awareness

of rising costs; and (3) by falsely claiming its intention to

employ certain cost-saving devices during construction. We

discuss each of these claims in turn.

1. Odebrecht’s Bid

Bettis argues that Odebrecht’s bid was fraudulent because

Odebrecht failed to follow industry standards for accuracy in

preparing its bid. Specifically, Bettis charges that Odebrecht

inadequately performed “quantity take-offs” in calculating its

cost estimates.

11

A quantity take-off is a detailed estimate of the quantity of

each work item required by a contract. There is no dispute that

performing quantity take-offs is a standard procedure in

preparing bids. And Bettis produced evidence that a fully

accurate and dependable cost estimate cannot be made in the

absence of this procedure. Nevertheless, Bettis’s argument fails.

As the District Court recognized, see Bettis, 297 F. Supp. 2d at

286-87, even if Odebrecht failed to perform quantity take-offs,

this would not establish that Odebrecht’s bid was fraudulent,

i.e., that it contained false representations.

Bettis argues that Odebrecht’s failure to perform quantity

take-offs renders its bid fraudulent because “a bid proposal

implicitly promises that the contractor is in possession of facts

that support his estimate and that he knows of no contrary facts,”

citing Harrison for this proposition. Br. for Appellant at 36.

While it may be true that “an opinion or estimate carries with it

an implied assertion, not only that the speaker knows no facts

which would preclude such an opinion, but that he does know

facts which justify it,” Harrison, 176 F.3d at 792 (internal

quotation marks omitted), the point is inapposite. The disputed

bid in this case did not purport to be an opinion or an estimate;

rather, Odebrecht’s bid was merely an offer to enter into a

contract.

By submitting its bid, all that Odebrecht represented was

that it would perform the work required at the unit prices

specified in the bid in strict accordance with the terms of the

solicitation. See Solicitation at 2, reprinted in J.A. at 1466,

1467. Bettis identifies no facts by which a reasonable jury could

conclude that, when it submitted its bid, Odebrecht did not

intend to be bound by the specified unit prices. Odebrecht did

not, by submitting its bid, make any representations regarding its

anticipated costs or the procedures it employed in calculating its

bid. There are clearly no such express representations, and

Bettis identifies no binding requirements – whether in the

12

federal acquisition regulations in Title 48 of the Code of Federal

Regulations or elsewhere – that would give rise to any such

representations by implication.

Therefore, on the evidence before us, no reasonable jury

could conclude that, by submitting its bid, Odebrecht

fraudulently induced the Corps to award it the contract.

2. Odebrecht’s Reaffirmation of the Bid

As already noted, after the bids were opened in July 1993

and Odebrecht was ascertained as the low bidder, Tutor-Saliba

commenced a series of protests to prevent Odebrecht from being

awarded the contract. As a result of these protests, the awarding

of the contract to Odebrecht was delayed until March 1994.

During this protest period, the Corps requested Odebrecht to

reaffirm its bid, which otherwise would have expired after 60

days.

Bettis claims that Odebrecht’s reaffirmations were

fraudulent because Odebrecht was aware that its costs were

rising during the protest period. Bettis argues that, despite this

knowledge that costs were rising, with each renewal Odebrecht

“reaffirmed the costs and expenses, and underlying assumptions

contained in the initial bid” and represented that “it was capable

of performing the contract at the stated price.” Br. for Appellant

at 40, 18. Bettis also points out that Odebrecht’s bid preparer

testified that he did not amend the bid because it was his

understanding that if the costs changed he could file a change

order. Indeed, Bettis notes, Odebrecht ultimately did request an

equitable adjustment of $7.9 million to cover escalation of costs

attributable to the delay.

Bettis’s argument here fails. Bettis continues to rely on his

belief that the submission of the bid in this case amounted to a

representation regarding Odebrecht’s costs. It did not. As the

District Court correctly discerned, “[b]y reaffirming its bid,

[Odebrecht] agreed to continue to be bound by its bid and the

13

contract; it did not represent that its costs had not increased, and

it did not promise that it would not seek equitable adjustments

for increased costs irrespective of the justification for the

increases.” Bettis, 297 F. Supp. 2d at 289.

Moreover, Odebrecht’s subsequent request for an equitable

adjustment does not permit the inference that Odebrecht had no

intention of being bound by its unit prices. As the District Court

noted, subsequent mediation between Odebrecht and the Corps

over the equitable adjustment demonstrated that Odebrecht’s

position had merit. See id. at 288-89. And in any event, we

have previously noted that:

Disputes arise between the government and its contractors

every day. Contractors do not win every penny they claim.

On [the relator’s] theory, any contracting party that

misunderstands its legal entitlements and therefore fails to

recover on an invoice in full would be liable under the False

Claims Act – except in instances where it was unaware of

the facts that led to its failure to recover in full. This is not

a prescription for fair or efficient contracting.

United States ex rel. Siewick v. Jamieson Sci. & Eng’g, Inc., 214

F.3d 1372, 1378 (D.C. Cir. 2000) (rejecting the argument that a

contractor can be said to have knowingly presented false claims

within the meaning of the Act by submitting invoices under a

contract that was arguably voidable by the Government). This

observation is apt here. Even if Odebrecht mistakenly assumed

when it reaffirmed its bid that it could lawfully recover

increased costs through a change order, this does not

demonstrate fraud under the FCA.

3. Odebrecht’s Representations Regarding Cost-Saving

Measures

In July 1993, after the bids were opened and Odebrecht was

identified as the low bidder, but before the contract was

awarded, Odebrecht staff members met with Corps officials to

14

discuss Odebrecht’s plans for the construction of the dam. At

these meetings, Odebrecht announced certain cost-saving

measures that it planned to use and which enabled it to make

such a low bid. First, Odebrecht explained that it intended to

purchase new equipment and operate it twenty hours per day,

seven days a week, permitting Odebrecht to work with fewer

pieces of equipment and to depreciate the equipment over the

life of the contract. Second, Odebrecht detailed its plan to

manage labor by using rolling construction teams that would

work four consecutive days for ten hours per day (known as

“rolling four-tens”), enabling construction to proceed for twenty

hours per day, every day, without the payment of overtime.

Third, Odebrecht proposed to excavate the spillway of the dam

using a technique known as a “glory hole,” which involves

drilling a large hole down a mountain through which earth and

rock is dropped from the top of the excavation area onto a

conveyer system below.

Bettis argues that these representations were fraudulent,

because Odebrecht “never used a glory hole . . . did not purchase

substantially all new equipment . . . [and] did not, but for a brief

period of time, deploy its work force in rolling 4-10’s.” Br. for

Appellant at 38. Arguing that “the best indication of what a

party intended to do is what he actually did,” Bettis claims that

these facts demonstrate that Odebrecht’s representations were

false. Id. at 39.

“Generally, there is no inference of fraudulent intent not to

perform from the mere fact that a promise made is subsequently

not performed.” United States ex rel. Willard v. Humana Health

Plan of Tex., Inc., 336 F.3d 375, 386 (5th Cir. 2003) (internal

quotation marks omitted); see also RESTATEMENT (SECOND) OF

TORTS § 530 cmt. d (1977) (“The intention of the promisor not

to perform an enforceable or unenforceable agreement cannot be

established solely by proof of its nonperformance, nor does his

failure to perform the agreement throw upon him the burden of

15

showing that his nonperformance was due to reasons which

operated after the agreement was entered into.”); W. PAGE

KEETON ET AL., PROSSER AND KEETON ON THE LAW OF TO RTS

§ 109, at 764 (5th ed. 1984) (“The mere breach of a promise is

never enough in itself to establish the fraudulent intent.”). Bettis

claims, however, that the inference of fraudulent intent is

justified on the facts of this case, “when there is no intervening

change of circumstances and where the repudiation comes

quickly after the contract is signed.” Br. for Appellant at 40.

While Bettis is correct that fraudulent intent may sometimes be

inferred in such circumstances, see Willard, 336 F.3d at 386;

KEETON, supra, § 109, at 764-65, the record does not support

such a characterization of the evidence.

As the District Court observed, the undisputed evidence is

that Odebrecht substantially attempted to implement the

proposed cost-saving measures. See 297 F. Supp. 2d at 283-86.

Specifically, Odebrecht initially purchased mostly new

equipment, used rolling four-tens throughout the first year of

construction, and planned to use a glory hole until the spring or

summer of 1995. In light of this undisputed evidence, the fact

that some of these measures were ultimately abandoned as

unfeasible does not permit the inference that Odebrecht never

intended to implement them.

III. CONCLUSION

Because there are no material facts in dispute and the

undisputed facts do not permit the conclusion that Odebrecht

fraudulently induced the Corps to award it the contract, we

affirm the judgment of the District Court on this ground alone.

So ordered.