Amicus Curiae Brief — Planning Research Corp. v. United States ex rel. Schwedt

sili PILE \

EC 28 1990 No. 95-829

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

PLANNING RESEARCH CORPORATION,

Petitioner,

Vi

UNITED STATES OF AMERICA

ex rel MERVYN A. SCHWEDT,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

MOTION FOR LEAVE TO FILE BRIEF AS

AMICUS CURIAE AND BRIEF FOR NATIONAL

SECURITY INDUSTRIAL ASSOCIATION AS

AMICUS CURIAE IN SUPPORT OF PETITIONER

ROBERT K. HUFFMAN

Counsel of Record

ALAN C. BROWN

ALAN I. HOROWITZ

PETER B. HUTT II

MILLER & CHEVALIER, Chartered

Metropolitan Square

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 626-5800

December 1995

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

No. 95-829

PLANNING RESEARCH CORPORATION,

Petitioner,

v.

UNITED STATES OF AMERICA

ex rel. MERVYN A. SCHWEDT,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

MOTION FOR LEAVE TO FILE

BRIEF AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

The National Security Industrial Association (NSIA)

respectfully moves for leave to file the attached brief as

amicus curiae in support of petitioner in this case. Counsel

for petitioner has consented to the filing of this brief, but

counsel for respondent has declined to consent.

NSIA is a national organization of more than 300

manufacturing, research, and service companies from all

segments of industry that provide goods and services in

support of the national security needs of the United States.

The members of NSIA often enter into contracts to provide

goods and services to government agencies.

The question in this case concerns the scope of the civil

liability provisions of the False Claims Act, 31 U.S.C.

§§ 3729-3733 -- specifically, the circumstances under which

a person may be liable for damages or penalties for making

a false claim for payment by the government, 31 U.S.C.

§ 3729(a). In the course of performing their government

contracts, NSIA’s members must have frequent

communication with government agencies and officials. The

decision below effectively expands the scope of the Act to

reach not only claims for payment but also many other

communications that are not calculated to induce the

government to part with money. That expansion threatens to

increase significantly the burden that NSIA’s members

already suffer from unmeritorious lawsuits brought by qui

tam relators who can act without government acquiescence.

Accordingly, NSIA has a strong interest in having the

erroneous decision below corrected, and we believe the Court

would benefit from its views in this case. |

Respectfully submitted,

ROBERT K. HUFFMAN

Counsel of Record

ALAN C. BROWN

ALAN I. HOROWITZ

PETER B. HUTT II

MILLER & CHEVALIER, Chartered

Metropolitan Square

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 626-5800

December 1995

ee eT ee ee en

ee

TABLE OF CONTENTS

Page

INTEREST OF THE AMICUS CURIAE ........... I

SUMMARY OF ARGUMENT .............

Dewees nee ees bbiscerdesesecs

A.

The Filing of a False Claim is a

Prerequisite to Civil Liability Under

Gee Pee Ce AGE wc Sec cece.

The Court of Appeals’ Approach Eviscerates

the Critical Requirement of the Filing of a

False Claim and Conflicts with Decisions in

Other Circuits by Allowing Civil Liability to

Attach to False Statements Made to the

Government that Have No Relation to a

SP EES Cc cece es erccccces

The Court of Appeals’ Error Has a Broad and

Deleterious Impact on False Claims Act

Litigation that Warrants the Attention of

te wor, codes ve btcecesvéves

DT Sh eevee esevceeses

5

~—

}

10

TABLE OF AUTHORITIES

CASES

Brunswick Bank & Trust Co. v. United States,

707 F.26 1355 (Fed. Cir. 19G3) ... 2.200.

Miller v. United States, 550 F.2d 17

ah Sale GEED 6 he teecukeeaews hhe bea

United States v. Bornstein,

Se Se SEE. cw oe eee ees ware 4%

United States v. Ekelman & Assoc., Inc.,

532 F.2d 545 (6th Cir. 1976) ...........

United States v. Grannis, 172 F.2d 507

(4th Cir.), cert. denied, 337 U.S. 918

[SED 05.5 600 amadine Gn een eee

United States v. McNinch, 356 U.S. 595 (1958)

United States v. Neifert-White,

OO Was SE CEE hi ca voescvec«s eis

United States v. Rivera, 55 F.3d 703

Pe ae SOT “cae hecduadeuuee pew oe

United States v. Tieger, 234 F.2d 589 (3d Cir.),

cert. denied, 352 U.S. 941 (1956) ........

United States v. Woodbury, 359 F.2d 370

(9th Cir. 1966) ...

eee

TABLE OF AUTHORITIES--Continued

STATUTES Page

False Claims Act, 31 U.S.C. §§ 3729-3733 ....... y

Fe Gan ED ce eh Sek eee s ot eu sicnes 4

DE Un Dn cc we 0s Ce ee U6 neh 48 ce) 4,6

Be Shans RED 2 Wh 0 00 Wild Se bbe C4 ee 4

Program Fraud Act of 1986, 31 U.S.C.

a a was ob deeb e606 14a ak ae 7

S. Rep. No. 212, 99th Cong.,

8). | be oe ee

MISCELLANEOUS

False Claims Act Technical Amendments of

1992: Hearing on H.R. 4563 Before the

Subcommittee on Administrative Law and

Governmental Relations of the House

Committee of the Judiciary, 102d Cong.,

lst Sess. 24 (1992) (Statement of

Stuart M. Gerson, Assistant Attorney

General, Civil Division, Dept. of Justice) . . ... 11-12

|

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

No. 95-829

PLANNING RESEARCH CORPORATION,

Petitioner,

v.

UNITED STATES OF AMERICA

ex rel. MERVYN A. SCHWEDT,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

BRIEF FOR NATIONAL SECURITY

INDUSTRIAL ASSOCIATION AS AMICUS

CURIAE IN SUPPORT OF PETITIONER

INTEREST OF THE AMICUS CURIAE

The National Security Industrial Association (NSIA) is a

national organization of more than 300 manufacturing,

research, and service companies from all segments of industry

that provide goods and services in support of the national

security needs of the United States. NSIA members annually

2

perfortn billions of dollars of work for government agencies

pursuant to thousands of contracts.

Because much of their work involves government

contracts, NSIA members are exposed to the possibility of

suits initiated by private individuals pursuant to the qui fam

provisions of the False Claims Act, 31 U.S.C. §§ 3729-3733.

Many of NSIA’s members have already been defendants in

such suits, which are frequently meritless. Even when the

lawsuit has no merit, however, qui tam litigation is often

extremely burdensome. Because the court of appeals’

erroneous decision in this case greatly expands the

circumstances that might allow an individual to draft a

facially valid complaint initiating a qui fam action, the

members of NSIA have a strong interest in the Court

reviewing this case and confining qui fam actions within the

limits established by Congress.

SUMMARY OF ARGUMENT

The decision below, by means of a creative and

unacceptably broad definition of the term "claim," has

expanded the reach of the civil liability provisions of the

False Claims Act far beyond the limitations established by

Congress. The text of the statute and the decisions of this

Court clearly establish that civil liability under the Act

attaches only to false statements associated with an immediate

demand for payment by the government. Although the

decision below pays lip service to that limitation, it

effectively sidesteps it by holding that the requirement of a

"claim" for payment here was satisfied by the mere fact that

the defendant had the ultimate "goal of receiving payment"

for its product. Pet. App. 7a.

3

Almost every government contractor has the ultimate goal

of receiving payment for its performance. These contractors

also are likely to have numerous communications with the

government concerning their obligations under the contract.

Thus, the court of appeals’ decision greatly expands the scope

of the False Claims Act by sweeping within the purview of

its civil penalties a multitude of false statements that have

nothing to do with demands for payment.

The effect of that erroneous expansion of the Act’s

coverage is magnified by two other factors: (1) the minimal

threshold for "falsity" exemplified by the decision below,

where the alleged misrepresentation was little more than a

difference of opinion over whether the product complied with

specifications (see Pet. App. 7a); and (2) the recognized

tendency of many qui tam plaintiffs to initiate and pursue

False Claims Act suits that the government regards as

unmeritorious. Unless this Court acts to correct the lower

court’s misinterp:station of the Act, the courts can expect to

experience an explosion of unwarranted gui tam lawsuits that

will unnecessarily burden both the judiciary and unjustly

accused defendants.

ARGUMENT

A. The Filing of a False Claim is a Prerequisite to

Civil Liability Under the False Claims Act

The text of the False Claims Act, 31 U.S.C. §§ 3729-

3733, is unambiguous in describing the circumstances that

can give rise to civil liability. A person who knowingly

presents to a government employee "a false or fraudulent

claim for payment or approval" or who knowingly makes "a

4

false record or statement fo get a false or fraudulent claim

paid or approved by the Government" is liable for a civil

penalty of up to $10,000. 31 U.S.C. § 3729(a)(1), (2)

(emphasis added). The key requirement of a "claim" is

specifically defined as "any request or demand . . . for money

or property . . . if the United States Government provides any

portion of the money or property which is requested or

demanded." 31 U.S.C. § 3729%c).

This definition reflects earlier decisions by this Court that

made clear that civil False Claims Act liability does not

attach without the filing of a false claim for payment. The

leading case is United States v. McNinch, 356 U.S. 595

(1958), where the government sought to bring a False Claims

Act suit against a defendant who allegedly had made false

statements in an application to a bank for a loan that would

be guaranteed by the Federal Housing Administration (FHA).

This Court did not dispute that the alleged misconduct was

reasonably viewed as a “kind of fraud practiced on the

Government" (id. at 599) and that the fraudulent loan

application could reasonably "be regarded as a claim, in that

the applicant asserts a right or privilege to draw upon the

government’s credit" (id. at 598). Citing to the history and

purposes of the False Claims Act, however, the Court ruled

that the loan application was not the kind of "claim" that fell

"within the scope that Congress intended the Act to have."

Id. at 599.

Rather, the Court explained, Congress intended that the

Act impose civil liability only when the "claim" is a kind of

"demand for money." Jd. at 599, quoting United States v.

Tieger, 234 F.2d 589, 591 (3d Cir.), cert. denied, 352 U.S.

941 (1956). Even though the false loan application set in

5

motion events that eventually could have led to the

government paying money in the event of default, the

application was not a "claim" within the meaning of the Act

because it did not request that the FHA disburse funds or

otherwise cause the FHA any “immediate financial

detriment." 356 U.S. at 599.

The Court revisited this issue several years later in United

States v. Neifert-White, 390 U.S. 228 (1968), where it

reinforced the importance of whether the defendant has made

a demand for payment. This time the Court found that there

was False Claims Act liability for the defendant’s false

statements made in a loan application submitted to a federal

agency. The Court explained that the crucial difference

between that case and McNinch was that the loan request

made directly to a federal agency triggered a disbursement of

government funds and therefore was a form of a demand for

payment by the government. Because Neifert-White

"involve[d] a false statement made with the purpose and

effect of inducing the Government immediately to part with

money,” it fit the definition of a "claim" that gives rise to

civil liability under the Act. 390 U.S. at 232.

B. The Court of Appeals’ Approach Eviscerates the

Critical Requirement of the Filing of a False Claim

and Conflicts with Decisions in Other Circuits by

Allowing Civil Liability to Attach to False

Statements Made to the Government that Have No

Relation to a Demand for Payment

1. It is undisputed that the defendant in this case never

demanded payment from the government for software that

did not meet contract specifications. It submitted three

6

progress reports that allegedly falsely described the status of

the project, and on four occasions it delivered software for

testing. When the government rejected the software after

testing as not meeting specifications, the defendant did not

submit invoices or otherwise seek payment for the rejected

software. See Pet. App. 3a-4a.

The court of appeals purported to recognize the

fundamental rule that civil liability attaches only to the

presentation of a false claim for payment. /d. at 6a. Noting

that a "submission need not be an actual invoice to be a

‘claim’ or ‘statement’ under the Act," however, the court then

proceeded to define "claim" so broadly as to eviscerate that

fundamental rule. Jd. The court stated that if the progress

reports had falsely stated that the software was complete

when in fact it did not yet meet specifications, then "these

progress reports would constitute false statements in support

of false claims and would trigger the Act’s civil penalty." /d.

The court acknowledged that the progress reports were not

invoices seeking payment and that the defendant "did not

submit a bill for the software." Jd. at 7a. The failure to

demand payment was immaterial, according to the court,

because the defendant’s "goal of receiving payment was

implicit in the submission of the goods, and the

accompanying progress reports had the purpose of

‘get(ting] ... [the] claim... approved." Jd, quoting 31

U.S.C. § 3729(a)(2).

Though obscured somewhat by its terseness, the effect of

the court’s reasoning undeniably is to allow false statements

that are not associated with a demand for payment to give

rise to civil liability under the Act. The court found that the

complaint "state{d] a claim based on the three progress

7

reports," although those progress reports at most contained

false statements but concededly did not seek payment. Pet.

App. 7a. The court addressed the requirement of a "claim"

for payment with its statement that the defendant ultimately

had the "goal of receiving payment" for the submission of its

goods. Jd. But if that observation is sufficient to satisfy the

requirement, then there is effectively no requirement at all.

Virtually everyone who enters into a contract to provide

goods or services to the government does so with the ultimate

"goal of receiving payment.”

Thus, the effect of the court’s decision is to destroy the

crucial distinction between a mere false statement and a false

claim that is designed to induce the government to part with

money immediately. That distinction is not only one

recognized by the courts but also one that Congress has

emphasized as significant. In considering the Program Fraud

Act of 1986, 31 U.S.C. §§ 3801-3812, which was designed

to extend liability like that under the False Claims Act to

smaller claims, Congress noted that "under present law, there

is no civil penalty for submitting a false statement, unrelated

to a claim, to the government." S. Rep. No. 212, 99th Cong.,

ist Sess. 18 (1985). Thus, in discussing the proposal that the

Program Fraud Act contain a separate section that would

establish liability for "[pJersons knowingly submitting false

statements, unrelated to a claim," the Senate Report

acknowledged that the new statute would go beyond the

limitations contained in the False Claims Act. /d. at 17.

Indeed, elsewhere in its opinion the court effectively

acknowledges that its decision obliterates the key distinction

between false statements and false claims for payment.

Several cases have made clear that the Act allows for the

imposition of a distinct penalty for each false claim

submitted, but not for each false statement submitted. See,

e.g., Miller v. United States, 550 F.2d 17, 24 (Ct. Cl. 1977);

United States v. Woodbury, 359 F.2d 370, 377-78 (9th Cir.

1966), United States v. Grannis, 172 F.2d 507, 515-16 (4th

Cir.), cert. denied, 337 U.S. 918 (1949). In United States v.

Bornstein, 423 U.S. 303 (1976), this Court expressed its

approval of this line of cases, noting that they were "in

accord with this Court’s statement that ‘the conception of a

claim against the government normally connotes a demand

for money or for some transfer of public property." /d. at

309 n.4, quoting United States v. McNinch, 356 U.S. at 599.

This rule would appear to pose a practical problem for

calculating potential penalties in this case because the "claim"

relied upon by the court of appeals -- the ultimate goal of

receiving payment -- is too inchoate to count as an event that

triggers an individual penalty assessment. The court of

appeals dealt with this problem by simply ignoring the

distinction between false claims and false statements,

observing that "[eJjach individual false claim or statement

triggers the statute’s civil penalty." Pet. App. 6a, citing

Bornstein, 423 U.S. at 313. That incorrect assertion allowed

the court of appeals to agree with the plaintiff that each of

the three progress reports gives rise to a separate penalty,

even though the progress reports are not claims for payment

but at most are false statements. See Pet. App. 8a. In so

doing, the court of appeals subtly expanded the reach of the

Act in a manner that has tremendous significance for False

Claims Act litigation.

2. The decision of the court below is irreconcilable with

decisions in other circuits. Other courts of appeals have

ee ee 8S

TOS ce Ne er aes wae

9

routinely and uniformly rejected False Claims Act liability

for false statements not associated with a false claim, even

though the defendant had the ultimate goal of inducing the

government to pay out money.

Brunswick Bank & Trust Co. v. United States, 707 F.2d

1355 (Fed. Cir. 1983), is illustrative. In that case, a bank

issued a construction loan and then misrepresented to a

federal agency that all construction and acquisition had been

completed on the project, which was a certification needed

before the agency would enter into a contract to guarantee the

loan. /d at 1364 & n.12. The court ruled that this

misrepresentation was not an actionable false "claim" under

the Act because it did not "in any way affect{] the bank’s

contractual and legal right to reimbursement under the

contract of guaranty." Jd. at 1365. The court emphasized

that "[i]n order to determine whether a false claim for

payment has been presented upon the United States, a court

must focus on the actual claim for reimbursement under the

guaranty contract." /d. at 1365 n.13. Plainly, this approach

would not allow for imposition of False Claims Act liability

in circumstances like those presented here. See also United

States v. Rivera, 55 F.3d 703, 709 (ist Cir. 1995) ("the

statute attaches liability, not to the underlying fraudulent

activity or to the government’s wrongful payment, but to the

‘claim for payment.’"); United States v. Ekelman & Assoc.,

Inc., 532 F.2d 545, 552 (6th Cir. 1976) (statute of limitations

does not begin to run until the defendant "presents a claim to

the VA or FHA for payment on the guaranty or insurance").

ee

10

C. The Court of Appeals’ Error Has a Broad and

Deleterious Impact on False Claims Act Litigation

that Warrants the Attention of This Court

The potential mischief wrought by the court of appeals’

decision is enormous. A contractor can be expected to have

countless communications with government officials in the

course of performing its obligations under the typical

government contract. According to the decision below, each

one of these communications has the potential for triggering

a False Claims Act suit, even if it is unrelated to a claim for

payment. Indeed, even if the contractor never makes any

claim for payment, it can be exposed to False Claims Act

liability so long as the goal of its efforts at performance was

to obtain payment for goods or services.

Moreover, this case demonstrates how flimsy the

allegations of falsity can be and still be regarded by a court

as sufficient to support a cause of action under the Act. The

defendant submitted a series of progress reports containing a

table reflecting how close it was to completion of various

tasks. |The progress reports listed certain software

development as 100 percent completed when the software

was ready for submission to the government. The court of

appeals ruled that, when the product failed government

testing, the plaintiff was entitled to file suit on the ground

that the defendant "‘present[ed] and cause[d] to be presented

non-functional and non-compliant software to representatives

of the United States while wrongfully and knowingly

misrepresenting that said software was compliant and

functional.’" Pet. App. 6a, quoting Complaint § 25.

To the court, it was not material that the defendant

responded to the government’s failure to accept the software

in the way that most customers would want their supplier to

respond; the defendant went back to work on improving the

software and did not attempt to seek payment for the rejected

product. In other words, under the decision below a

contractor may expose itself to False Claims Act liability

whenever it has a difference of opinion with the government

over the quality of its product -- even if the contractor

accedes to the government’s opinion and determines not to

seek payment for a product that has been rejected as

unsatisfactory.

This decision thus opens the door to a tremendous

expansion of False Claims Act litigation beyond the limits

established by Congress. Because of the gui tam provisions

of the Act, there is no reason to hope that prosecutorial

discretion will prevent this potential expansion from

becoming a reality. Experience under the Act shows that its

qui tam provisions lead to private lawsuits in many instances

where there has not truly been an attempt to defraud the

government and where the government itself would not

regard the circumstances as appropriate for seeking civil

liability. Even under the Act as properly construed, the

Justice Department has complained to Congress about the

abuse of the qui tam provisions by private citizens who are

more interested in fortune hunting than in penalizing actual

efforts to defraud the government. The Assistant Attorney

General of the Civil Division testified in 1992 that many gui

tam suits are "frivolous," presenting "no evidence, no

information based on personal knowledge, or are kitchen

sink’ complaints containing every conceivable broad

allegation without any specific evidence whatsoever." False

12

Claims Act Technical Amendments of 1992: Hearing on H.R.

4563 Before the Subcommittee on Administrative Law and

Governmental Relations of the House Committee of the

Judiciary, 102d Cong., Ist Sess. 24 (1992) (Statement of

Stuart M. Gerson, Assistant Attorney General, Civil Division,

Dept. of Justice).

The government declines to appear in most of the qui tam

cases that it investigates (id. at 25), including this one, but

that government judgment that the case is unmeritorious does

not prevent the suit from proceeding, The result is much

litigation that, even though the suit ultimately will be

dismissed, is unnecessarily burdensome to the judicial system

and the defendants who are unjustly accused. The court of

appeals’ expansive and erroneous redefinition of the

circumstances that can give rise to civil liability under the

Act will further exacerbate this problem by allowing a

potential gui tam plaintiff to cobble together a facially valid

complaint in connection with almost any government

contract, regardless of whether the contractor has attempted

to obtain payment from the government by fraud.

Finally, even for those cases where a contractor is

legitimately subject to liability under the Act because it has

submitted a false claim for payment, the decision of the court

of appeals establishes a rule that destroys the fabric of the

Act’s penalty provisions. In determining the penalty that

attaches to a False Claims Act violation, Congress was aware

that each separate false claim would be actionable as a

separate violation. It did not contemplate, however, that each

individual communication between the contractor and the

government, such as a progress table routinely included in

periodic progress reports, could give rise to a separate

13

penalty. An approach that treats every single false statement

as a separate violation may transform even relatively minor

cases, where little or no actual damage occurs, into ones

involving hundreds of thousands or millions of dollars in

potential penalties.

For all of these reasons, this Court should not let the

decision below stand. Rather, it should grant certiorari and

reverse the court of appeals in order to restore uniform

application of the False Claims Act’s rule that civil liability

does not attach to false statements alone, but rather only

when a false claim for immediate payment is filed.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

ROBERT K. HUFFMAN

Counsel of Record

ALAN C. BROWN

ALAN I. HOROWITZ

PETER B. HUTT II

MILLER & CHEVALIER, Chartered

Metropolitan Square

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 626-5800

December 1995