U.S. ex rel. Badr v. Triple Canopy, Inc., an intervened case arising out of the Fourth Circuit, has been one of the more closely-watched recent FCA cases. Previously, the Fourth Circuit held that the government’s complaint properly alleged an FCA claim and could survive Triple Canopy’s motion to dismiss. That ruling was subsequently vacated by the Supreme Court following its decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar, which we covered here and here. On May 16, 2017, the Fourth Circuit issued its opinion on remand, finding that the complaint satisfied the pleading standards set forth in Escobar and re-affirming its conclusion that the complaint adequately stated an FCA claim.

Factual Background

Triple Canopy is a security firm that was awarded a government contract to provide security services to a military airbase in Iraq. Triple Canopy was tasked with preventing unauthorized access to the base and conducting internal roving patrols. As part of its services, Triple Canopy was required to ensure, among other things, that its guards satisfied a marksmanship requirement.

Triple Canopy hired 332 Ugandan guards to police the airbase under the supervision of 18 Americans. Although the guards’ personnel files indicated that they satisfied the marksmanship requirement while in Uganda, the supervisors soon realized the guards lacked proper marksmanship skills and could not satisfy the marksmanship requirement.  The supervisors then directed employees to create false marksmanship scorecards purportedly demonstrating the guards’ satisfactory scores. The relator was one of the employees instructed to falsify scorecards. During this time, Triple Canopy billed the government for guard services, listing the number of guards in service for each month.

Impliedly False Claim

The Fourth Circuit held that the complaint adequately alleged an impliedly false claim.  In Escobar, the Supreme Court held that FCA “liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory, or contractual requirement.” In particular, “liability may attach if the omission renders those representations misleading.”

Applying this test, the Fourth Circuit held that the government had alleged an actionable “half-truth:” “although Triple Canopy knew its ‘guards’ had failed to meet a responsibility in the contract, it nonetheless requested payment each month from the Government for those ‘guards.’ Just as in [Escobar], anyone reviewing Triple Canopy’s invoices ‘would probably—but wrongly—conclude that [Triple Canopy] had complied with core [contract] requirements.’”

Materiality

The Fourth Circuit also held that the government’s allegations satisfied Escobar’s materiality requirement. While the Fourth Circuit recognized that the materiality standard is “a high one,” it reasoned that Escobar “compelled” a finding that the complaint adequately pleaded materiality. The Fourth Circuit was especially persuaded by a hypothetical offered by the Supreme Court in its discussion of scienter, in which the Supreme Court reasoned that “a reasonable person” would realize that it is material to the government’s decision to purchase guns that the guns actually shoot. Applying this hypothetical to Triple Canopy, the Fourth Circuit concluded that “Guns that do not shoot are as material to the Government’s decision to pay as guards that cannot shoot straight.”

The Fourth Circuit reasoned that materiality was further shown by the fact that “the Government did not renew its contract for base security with Triple Canopy and immediately intervened in the litigation.”

While the Fourth Circuit’s conclusion is perhaps unsurprising—in its earlier decision, the Fourth Circuit held that it was “common sense” that the government would find it material whether guards in an active combat zone could shoot straight—it is surprising that the Fourth Circuit held that materiality was evidenced by the government’s immediate intervention. Escobar did not address whether intervention could be a basis for finding materiality, and the Fourth Circuit did not explore what weight should be attributed to non-“immediate” intervention or declination.