FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS April 22, 2016
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
UNITED STATES OF AMERICA ex rel.
KEVIN THOMAS; CAROLYN
THOMAS,
Plaintiffs - Appellants,
v. No. 15-3155
BLACK & VEATCH SPECIAL
PROJECTS CORP.,
Defendant - Appellee.
_________________________________
Appeal from the United States District Court
for the District of Kansas
(D.C. No. 2:11-CV-02475-DDC)
_________________________________
Jason M. Hans (Kirk T. May with him on the briefs), Rouse Hendricks German May PC,
Kansas City, Missouri, for Plaintiffs-Appellants Kevin and Carolyn Thomas.
Nathan F. Garrett (Kathleen A. Fisher with him on the brief), Graves Garrett LLC,
Kansas City, Missouri, for Defendant-Appellee Black & Veatch Special Projects Corp.
_________________________________
Before HARTZ, PHILLIPS, and McHUGH, Circuit Judges.
_________________________________
McHUGH, Circuit Judge.
_________________________________
Kevin and Carolyn Thomas (Relators) filed this qui tam action against their
former employer, Black & Veatch Special Projects Corporation (BVSPC), alleging
violations of the False Claims Act, 31 U.S.C. §§ 3729–3733. Relators claim BVSPC
altered documents to obtain visas and work permits from the Afghan government and
then falsely certified it had complied with applicable laws to obtain payment under
its contract with the United States Agency for International Development (USAID).
The district court granted BVSPC’s motion for summary judgment, concluding
Relators could not prove any alleged false certification was material to USAID’s
decision to pay BVSPC. The district court also determined Relators could not prove
damages. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm.
I. BACKGROUND
A. Factual History
BVSPC is an engineering, consulting, and construction firm based in Overland
Park, Kansas. In December 2010, USAID awarded BVSPC Contract No. 306-C-00-
11-00506-00 (the Contract), which related to the Kandahar Helmand Power Project
(the Project) in Kandahar, Afghanistan. The purpose of the Project was “to increase
the supply, quantity, and distribution of electrical power from Afghanistan’s South
East Power System (SEPS)” with “[p]articular emphasis . . . given to the City of
Kandahar.”
Under the Contract, BVSPC agreed to complete six deliverable components of
the Project, including thirteen subcomponents, and to “provide all engineering,
procurement, construction, and other material, equipment and/or services necessary
2
to complete and successfully commission each of the six components in accordance
with the requirements of this [C]ontract.” The Contract required BVSPC to submit
invoices every two weeks and required USAID to pay within fourteen days “after
receipt of a proper invoice.” After final completion and acceptance, and “[u]pon
compliance by [BVSPC] with all the provisions of [the Contract],” USAID was also
required to “promptly pay to [BVSPC] any moneys . . . due.” The payment-approval
process required BVSPC’s Chief of Party to coordinate with USAID’s Contracting
Officer and the Contracting Officer’s Technical Representative (Technical
Representative).
At the time BVSPC moved for summary judgment on December 23, 2014,
USAID had issued notices of final completion and acceptance on ten of the
Contract’s deliverable subcomponents. Similar notices were currently pending for the
three remaining subcomponents.
Relators Kevin and Carolyn Thomas worked for BVSPC in Afghanistan from
April 18, 2011, until they resigned on July 2, 2011. The events leading to their
resignation began on June 25, 2011, when Mr. Thomas discovered educational
documents that had been altered to replace the correct names with the names of seven
BVSPC employees, including Mr. Thomas. Mr. Thomas found the documents on a
shared network drive using a computer identified as “LighteningBug 1A,” which was
located in BVSPC’s human-resources office and accessible by all BVSPC employees.
Immediately after finding the documents, Mr. Thomas reported the discovery to
BVSPC’s acting Chief of Party, Lynn Liikala-Seymore.
3
Two days later, on June 27, 2011, Mr. Thomas contacted the USAID Office of
Inspector General (OIG) and gave OIG copies of the altered documents. On June 29,
2011, Carolyn Thomas met with OIG, provided additional copies of the documents,
and described how they had been found. According to Ms. Thomas, OIG was “not
that interested in the case.” Indeed, OIG personnel stated the documents were an
issue between BVSPC and the Afghan government and expressed interest only to the
extent BVSPC was “using these forgeries to get more money out of USAID.”
Ms. Liikala-Seymore also met with OIG on June 29, 2011. At the meeting,
“OIG had copies of apparently altered educational documents and was aware of the
Thomases’ allegations regarding the forged documents.” Ms. Liikala-Seymore and
OIG also discussed the BVSPC human-resources personnel working on the Project.
In late June or early July 2011, Ms. Liikala-Seymore spoke with USAID’s Technical
Representative, Tom Bauhan, regarding the altered documents.1
1
Relators objected to a declaration from Mr. Bauhan, arguing he is not
authorized to speak on behalf of USAID. Before the district court, BVSPC made
conclusory arguments that Mr. Bauhan had such authority but did not provide any
legal support for its position. For the first time on appeal, BVSPC identifies and
analyzes regulations it claims authorize Mr. Bauhan to speak for USAID. Because
these arguments were not raised in the district court, we do not consider them. See
McDonald v. Kinder-Morgan, Inc., 287 F.3d 992, 999 (10th Cir. 2002) (“[A]bsent
extraordinary circumstances, we will not consider arguments raised for the first time
on appeal.”).
But most of Mr. Bauhan’s testimony is factual and based on his personal
knowledge. Thus, even if we assume he cannot bind USAID to an official position,
Mr. Bauhan’s factual statements based on his personal knowledge as Technical
Representative for the Project are properly before us. See Fed. R. Evid. 602.
Moreover, much of Mr. Bauhan’s factual testimony was confirmed by other,
undisputed evidence. For example, Ms. Liikala-Seymore testified to her
communications with Mr. Bauhan, and Relators did not object to her testimony.
4
In addition, BVSPC instigated an investigation “to determine (a) who created
the altered diploma documents and (b) whether the altered documents had been
submitted to the Afghan[] government during the work permit and visa application
process.” On June 30, 2011, BVSPC human-resources personnel held an exit
interview with Khalid Afridi, a former employee who had worked primarily on the
computer identified as LighteningBug 1A. During his exit interview, Mr. Afridi was
questioned about the altered documents, but he denied responsibility and asserted he
did not have the necessary software to make the alterations. Mr. Afridi suggested
another employee may have tried to “set him up” because they did not like each
other. On July 16, 2011, Ms. Liikala-Seymore sent OIG a memorandum describing
Mr. Afridi’s exit interview. On at least three occasions, BVSPC attempted to obtain
copies of the documents filed with the Afghan government, to determine whether the
altered documents had actually been submitted to the relevant ministries.2 The
Afghan government did not provide copies of the requested documents. USAID and
OIG were similarly unsuccessful in obtaining copies of the relevant documents from
Accordingly, we consider Mr. Bauhan’s testimony based on his personal knowledge
and facts established by independent evidence, but disregard his opinions regarding
the significance of Relators’ allegations to USAID’s payment decisions.
Relators also object to a declaration from USAID Contracting Officer Alvera
Reichert because BVSPC failed to disclose her as a witness under Rule 26(a) of the
Federal Rules of Civil Procedure. We do not decide whether the district court
properly admitted Ms. Reichert’s testimony because we do not rely on it in reaching
our conclusions.
2
Relators cited evidence of a fourth attempt where BVSPC personnel
personally visited the ministries to review documents submitted to the Afghan
government. According to Relators, the BVSPC representatives “were able to review
what had been submitted and no forged diplomas were found.”
5
the Afghan government. At OIG’s direction, BVSPC ceased its efforts to get the
application packets from the Afghan government.
Relators dispute whether BVSPC initially had hard copies of the altered
documents in its employee files. BVSPC’s human resources manager, Mark
Whitehouse, testified that a copy of each application packet would have been made
before submission to the Afghan government. But BVSPC was unable to locate
copies of the documents actually submitted in its files, and informed USAID that it
had not maintained organized records of the education documents filed with the
Afghan government.
In a further effort to discover the source of the altered documents, BVSPC
hired Hewlett-Packard (HP) to perform a forensic analysis of certain BVSPC
computers. Although Relators dispute whether all relevant computers were included
in the forensic analysis, HP’s analysis indicated that several altered documents were
created on LighteningBug 1A. BVSPC summarized the forensic findings in an email
to OIG:
We have completed the forensic analysis on the computers sequestered
that include the BVSPC issued computers for the Thomas[es] as well as
the “walk-up” computer provided by USAID [LighteningBug 1A]. The
Thomas computers appear clean from any pejorative acts regarding
falsifying documents; however, we are unable to acquire and check their
own personal computers. The USAID computer, however, did include
falsified and altered accreditations for a few personnel. Some were
actually modified on the computer and others were placed on the
computer already modified, most probably by using a flash-drive. The
analysis was not conclusive as to who may have altered or added data
since there was one universal password that allowed virtually anyone to
use the computer.
6
BVSPC then arranged a conference call during which HP discussed its analysis with
OIG and BVSPC gave OIG a copy of the HP report. After HP completed its
evaluation, BVSPC turned over the examined computers to OIG, along with chain-of-
custody records for each device.
Simultaneously with its investigation, BVSPC attempted to locate and remove
all copies of the altered documents from its files to ensure they were not commingled
with other documents. Notwithstanding these efforts, in May and September 2012,
BVSPC inadvertently filed altered documents as part of work-permit-renewal
applications for two employees. BVSPC discovered the submissions in May 2013 and
promptly notified USAID. BVSPC also provided the dates it received the work
permits and the amount of time the two employees worked on the Project after
obtaining permits.
It is undisputed that “USAID never took any adverse action against BVSPC
despite its awareness of both the altered document allegations and the inadvertent
submissions.” The parties stipulated that, from April 19, 2011, to April 18, 2013,
BVSPC submitted over fifty invoices to USAID. All but five invoices were submitted
after USAID learned of the altered documents. And some of the invoices included
charges for work performed by the seven employees for whom altered education
documents were discovered. USAID paid BVSPC’s invoices and never sought a
refund, even after the Relators filed the complaint that is the subject of this appeal.
Indeed, in December 2013, USAID and BVSPC modified the Contract to award
additional work to BVSPC in Afghanistan. And by the time the parties filed the
7
pretrial order on November 25, 2014, USAID had paid BVSPC over $209 million for
its work on the Project.
B. Procedural History
On August 23, 2011, Relators filed this suit in the United States District Court
for the District of Kansas. The government declined to intervene.3 Relators alleged
BVSPC violated the False Claims Act (FCA) by “creat[ing] falsified and fraudulent
credential documentation (e.g., diplomas)” to obtain visas and work permits for its
employees and “[b]y presenting claims to officers or employees of the United States
for payment of wages for employees who had work visas and work permits as a result
of fraud.”
On summary judgment, the district court concluded based on the undisputed
facts that USAID knew about Relators’ allegations but continued to pay BVSPC even
after learning of and investigating the altered documents. In addition, USAID did not
demand a refund or take any other adverse action against BVSPC. Under these facts,
the district court determined that Relators could not prove BVSPC’s alleged
violations were material to USAID’s payment decisions. Accordingly, the district
3
Although the government itself may assert claims under the False Claims Act
(FCA), the FCA also includes qui tam provisions which allow individuals to sue on
the government’s behalf. 31 U.S.C. § 3730(b). In such cases, the government may
intervene but “often declines to do so.” United States ex rel. Lemmon v. Envirocare
of Utah, Inc., 614 F.3d 1163, 1167 (10th Cir. 2010). When the government does not
intervene, the private plaintiff, or relator, may pursue claims individually and, if
successful, may be entitled to a percentage of the recovery. 31 U.S.C. § 3730(d).
8
court granted BVSPC’s motion for summary judgment. In the alternative, the district
court granted summary judgment based on Relators’ failure to prove damages.
II. DISCUSSION
We review the grant of summary judgment de novo, “apply[ing] the same legal
standard used by the district court . . . and examin[ing] the record to determine if any
genuine issue of material fact was in dispute; if not, we determine if the substantive
law was correctly applied.” Applied Genetics Int’l, Inc. v. First Affiliated Sec., Inc.,
912 F.2d 1238, 1241 (10th Cir. 1990). In addition, “we view the factual record and
draw all reasonable inferences therefrom most favorably to” Relators as the
nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998).
Applying this standard, we agree that Relators cannot prevail as a matter of
law because the undisputed facts establish that any alleged contractual or regulatory
violation by BVSPC was not material to USAID. We therefore affirm the district
court’s decision granting summary judgment in favor of BVSPC.
A. Materiality Standard
The FCA imposes liability when a person “knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or approval.” 31 U.S.C.
§ 3729(a)(1)(A).4 To prove “a false or fraudulent claim” the plaintiff may rely on
“either a legally or factually false request for payment.” United States ex rel.
4
Although Relators did not explicitly identify section 3729(a)(1)(A) as the
basis for their claims, the Second Amended Complaint alleges “BVSPC knowingly
presented false claims for payment or approval to officers or employees of the United
States” and does not identify any other FCA provision that BVSPC allegedly
violated.
9
Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1168 (10th Cir. 2010). Factually
false claims “generally require a showing that the payee has submitted ‘an incorrect
description of goods or services provided or a request for reimbursement for goods or
services never provided.’” Id. (quoting United States ex rel. Conner v. Salina Reg’l
Health Ctr., 543 F.3d 1211, 1217 (10th Cir. 2008)). “Claims arising from legally
false requests, on the other hand, generally require knowingly false certification of
compliance with a regulation or contractual provision as a condition of payment.” Id.
Here, Relators rely on legally false claims—namely, Relators allege that BVSPC
falsely certified compliance with the Contract after altering documents to obtain
work permits and visas from the Afghan government.
Such claims of legal falsity “can rest [on] one of two theories—express false
certification, and implied false certification.” Conner, 543 F.3d at 1217. Express
false certification is based on a “false statement that relates to a claim, whether made
through certifications on invoices or any other express means.” Id. By contrast, “the
pertinent inquiry for [implied-false-certification] claims is not whether a payee made
an ‘affirmative or express false statement,’ but whether, through the act of submitting
a claim, a payee knowingly and falsely implied that it was entitled to payment.”5
Lemmon, 614 F.3d at 1169 (quoting Shaw v. AAA Eng’g & Drafting, Inc., 213 F.3d
519, 532 (10th Cir. 2000)).
5
Relators originally based their FCA claim on both express- and implied-
false-certification theories, but the district court granted BVSPC’s motion to dismiss
with respect to the express-false-certification claim. Relators have not appealed that
ruling.
10
Although express and implied claims differ, both “nonetheless share some
common elements, including a materiality requirement.” Id. We adopted the
materiality element in Conner, explaining that “[l]iability [under the FCA] does not
arise merely because a false statement is included within a claim”; rather, “the false
statement must be material to the government’s decision to pay out moneys to the
claimant.” 543 F.3d at 1219 & n.6 (second alteration in original); United States ex
rel. A+ Homecare, Inc. v. Medshares Mgmt. Grp., Inc., 400 F.3d 428, 443 (6th Cir.
2005) (“[T]he FCA imposes liability only for false statements or conduct which are
material to a false or fraudulent claim for money or property from the Government.”).
In Conner, the plaintiff asserted an express-false-certification claim and
argued that by signing a general certification of compliance, the defendant was liable
under the FCA based on any failure to comply with any underlying statute or
regulation. 543 F.3d at 1219. We disagreed and adopted the materiality requirement
as a means to determine which instances of noncompliance are covered by the FCA.
See id. at 1219–20. Specifically, we held that a false certification is material “only if
it leads the government to make a payment which it would not otherwise have made.”
Id. at 1219.
We have since clarified that “materiality does not require a plaintiff to show
conclusively that, were it aware of the falsity, the government would not have paid.
Rather, it requires only a showing that the government may not have paid.” Lemmon,
614 F.3d at 1170. This standard is consistent with the statutory language of the FCA,
11
which defines “material” as “having a natural tendency to influence, or be capable of
influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4).
But when applying that standard, our analysis of implied-false-certification
claims “focuses on the underlying contracts, statutes, or regulations themselves to
ascertain whether they make compliance a prerequisite to the government’s
payment.” Lemmon, 614 F.3d at 1168 (quoting Conner, 543 F.3d at 1218). It is not
enough that the plaintiff identifies any violation of any applicable provision as a
basis for FCA liability. See Conner, 543 F.3d at 1219. Instead, our precedent—
consistent with that from other circuits—requires that we consider the purpose of the
underlying contract and the significance of the relevant violation to that purpose in
assessing whether the alleged violation may have affected the government’s payment
decisions.
In Lemmon, for instance, the defendant had a contract with the federal
government to dispose of hazardous and radioactive waste. 614 F.3d at 1166. The
plaintiffs alleged the defendant “repeatedly violated its contractual and regulatory
obligations by improperly disposing of the contracted-for waste” and then violated
the FCA by falsely representing it had fulfilled its contractual obligations. Id.
Addressing the materiality element, we concluded the district court erred in granting
a motion to dismiss where the “[p]laintiffs cited specific contractual provisions under
which the government, had it been aware of the violations, may have refused or
reduced payment” and the “[p]laintiffs also showed that the violations undercut the
purpose of the contracts—the safe and permanent disposal of waste.” Id. at 1169.
12
Because the alleged violations were central to the purpose of the contract, the
plaintiffs sufficiently pleaded materiality.
In United States v. Triple Canopy, Inc., the Fourth Circuit’s analysis of the
materiality of the alleged violation was similarly informed by the purpose of the
contract. The court stated that, in implied-false-certification cases, the materiality
requirement
operates to protect contractors from “onerous and unforeseen FCA
liability as the result of noncompliance with any of potentially hundreds
of legal requirements” in contracts, because “[p]ayment requests by a
contractor who has violated minor contractual provisions that are merely
ancillary to the parties’ bargain” do not give rise to liability under the
FCA.
775 F.3d 628, 637 (4th Cir. 2015) (alteration in original) (quoting United States v.
Sci. Applications Int’l Corp., 626 F.3d 1257, 1271 (D.C. Cir. 2010)); see also id.
(explaining that “strict enforcement of the [FCA]’s materiality and scienter
requirements” is particularly important in implied-false-certification cases because
the theory “‘is prone to abuse’ by parties seeking ‘to turn the violation of minor
contractual provisions into an FCA action’” (quoting Sci. Applications Int’l Corp.,
626 F.3d at 1270)).
The defendant in Triple Canopy contracted with the U.S. Government to
provide security services at an airbase in Iraq, subject to a contract provision
imposing a marksmanship requirement for security guards. Id. at 632. When the
defendant discovered its guards could not satisfy the requirement, it nonetheless
submitted invoices for the guards’ services and created false marksmanship records.
13
Id. at 632–33. The contract’s purpose was to “ensur[e] the safety of servicemen and
women stationed at an airbase in a combat zone.” Id. at 638. Yet the defendant
“knowingly employed guards who were unable to use their weapons properly and
presented claims to the Government for payment for those unqualified guards.” Id.
The court held the government had sufficiently pleaded materiality for its FCA claim
because the false certification undermined the purpose of the contract. See id. at 637–
38 (“[C]ommon sense strongly suggests that the Government’s decision to pay a
contractor for providing base security in an active combat zone would be influenced
by knowledge that the guards could not, for lack of a better term, shoot straight.”).
Even some courts that have not explicitly adopted a materiality requirement
nonetheless determine FCA liability by looking at the significance of the violation in
light of the purpose of the contract. For example, in Mikes v. Straus, the Second
Circuit declined to adopt a separate materiality element but discussed the “related
concept” of whether a claim may be considered legally false for purposes of the FCA.
274 F.3d 687, 697 (2d Cir. 2001). The court reasoned that although the FCA “is
intended to reach all types of fraud . . . that might result in financial loss to the
Government, it does not encompass those instances of regulatory noncompliance that
are irrelevant to the government’s disbursement decisions.” Id. (citation and internal
quotation marks omitted). It therefore held that a claim “is not legally false simply
because the particular service furnished failed to comply with the mandates of a
statute, regulation or contractual term that is only tangential to the service for which
reimbursement is sought.” Id.
14
We agree that when assessing materiality for purposes of an implied-false-
certification claim, the proper focus is on the purpose of the underlying contract and
the relevance of the allegedly violated provision to that purpose. Thus, an FCA
plaintiff may establish materiality by demonstrating that the defendant violated a
contractual or regulatory provision that “undercut the purpose of the contract[].”
Lemmon, 614 F.3d at 1169. Alternatively, where a defendant violates only a
tangential or minor contractual provision, the plaintiff may establish materiality by
coming forward with evidence indicating that, despite the tangential nature of the
violation, it may have persuaded the government not to pay the defendant. We now
apply these principles to the present facts.
B. Materiality in This Case
Here, the express purpose of the Contract between BVSPC and USAID was
“to increase the supply, quantity, and distribution of electrical power from
Afghanistan’s South East Power System,” particularly in the City of Kandahar. To
that end, BVSPC agreed to complete six components of the Project, including
thirteen subcomponents, and agreed to comply with specific performance
requirements covering fourteen categories of its construction work, such as
environmental assessment, procurement and subcontracting, quality control, and
safety.
Relators have not alleged a violation that undermined the Contract’s purpose
of providing electricity to Kandahar and the surrounding area. In particular, Relators
have not alleged that BVSPC falsely certified completion of a Project component or
15
compliance with a performance requirement. And Relators have not alleged that
BVSPC provided deficient work on the Project or attempted to cover up any such
deficiency. To the contrary, it is undisputed that, at the time of summary judgment,
USAID had issued notices of final completion and acceptance of work on ten of the
thirteen subcomponents to be completed by BVSPC, with similar notices pending for
the other three. Moreover, USAID modified the contract to award additional work to
BVSPC. Even viewing the facts in the light most favorable to Relators as the
nonmoving party, the record does not reasonably support an inference that BVSPC
performed deficiently on the Project.
Although Relators acknowledge that none of the Project components or
performance requirements require BVSPC to obtain work permits or visas, they argue
that “[i]f the work on the six components was an integral part of the Contract, then
employing workers to do that work was an integral part of the Contract. Without
work permits, BVSPC employees could not legally work in Afghanistan.” It follows
then, they argue, that BVSPC materially violated the Contract by altering educational
documents to obtain visas and work permits for seven employees. In addition, of
more than one hundred regulations incorporated into the Contract, Relators rely on
two that require BVSPC to (1) comply with all applicable U.S. and host-country laws
and (2) ensure “[a]ll personnel have all necessary passports, visas, entry permits, and
other documents required . . . to enter and exit the foreign country.” 48 C.F.R. §
52.225-19(d)(1), (e)(2)(iii). Relators allege BVSPC’s creation of altered documents
16
violated the Afghan Penal Code and therefore violated the Contract’s requirement to
comply with Afghan law.
Even if we assume that BVSPC altered the documents and thereby violated
Afghan law, Relators have not established that the violation undercut the purpose of
the Contract. Relators instead rely on general regulatory provisions incorporated by
reference into all international government contracts. See 48 C.F.R. § 52.225-19(b)
(explaining that section 52.225-19 “applies when Contractor personnel are required
to perform outside the United States”). Nothing in the Project-specific provisions of
the Contract addressed this issue. As we have already determined, violations which
are merely tangential to the purpose of a government contract, standing alone, are
insufficient to satisfy the materiality requirement under the FCA. See Conner, 543
F.3d at 1219. And Relators offer no evidence to demonstrate that the alteration of
documents may have influenced USAID not to pay BVSPC, despite the tangential
nature of the violation. The undisputed evidence instead confirms that USAID did not
withhold payment after learning of Relators’ allegations.
Specifically, the undisputed facts establish that USAID knew Relators had
discovered altered documents and that they alleged the documents had been used to
fraudulently obtain work permits and visas. USAID also knew that HP’s forensic
analysis confirmed at least some of the documents had been altered on a BVSPC
computer and that some altered documents were actually submitted to the Afghan
government in 2012. Although investigative efforts failed to identify the person
responsible for the alterations, USAID was aware that the evidence strongly
17
suggested someone at BVSPC had altered documents. Notwithstanding this
information, USAID never took any adverse action against BVSPC.
To the contrary, from April 19, 2011, to April 18, 2013, BVPSC submitted
over fifty invoices to USAID. The invoices included charges for work performed by
employees whose educational documents had been altered. Yet USAID never
withheld payment on any BVSPC invoice, never demanded a refund of payments
made to BVSPC, and never invoked any of the discretionary remedies incorporated
into the Contract. See, e.g., 48 C.F.R. § 52.216-7(g) (granting authority for the
Contracting Officer to perform an audit and reduce payment for non-allowable costs
or adjust for overpayments); id. § 52.225-19(h) (permitting the Contracting Officer to
direct the removal or replacement of any personnel who fail to comply with
contractual requirements); id. § 52.232-16(c) (allowing USAID to reduce or suspend
progress payments for failure to comply with a material contractual requirement); id.
§ 52.249-6(a)(1) (providing for discretionary termination of a contractor if it is in the
government’s interest). Rather, USAID accepted BVSPC’s work and paid all BVSPC
invoices without objection or reservation. At the time of summary judgment USAID
had paid over $209 million on BVSPC’s invoices, the majority of which were
submitted after Relators and BVSPC had notified USAID about the altered
documents.
Thus, even if BVSPC violated the Contract by altering educational documents
for its employees, the undisputed facts show that the violation was not material to
USAID’s payment decisions.
18
C. Relators’ Position on Materiality
Relators contend that USAID did not know whether BVSPC actually submitted
altered documents to the Afghan government but only that Relators had alleged as
much. Without such confirmation, Relators maintain that materiality cannot be
decided on summary judgment. In addition, Relators argue BVSPC misled USAID
about the circumstances surrounding the altered documents. Finally according to
Relators, the district court did not understand the necessary context when it relied on
evidence of USAID’s continued payment even after BVSPC gave notice that it had
inadvertently submitted altered documents in 2012. None of these arguments
persuades us that the violations here were material.
1. Confirmation of Relators’ Allegations
First, Relators argue that materiality cannot be determined on summary
judgment because the evidence shows only that USAID was aware of allegations of
wrongdoing but did not know whether BVSPC had actually violated any law or
contractual provision. As support for this position, Relators rely on a decision from
the California Court of Appeal, San Francisco Unified School District ex rel.
Contreras v. First Student, Inc., 168 Cal. Rptr. 3d 832 (Ct. App. 2014).
In Contreras, the relator alleged the defendant bus company violated
California’s False Claims Act by requesting payment from the school district despite
its noncompliance with multiple maintenance requirements. On appeal, the bus
company did not dispute there was evidence “of a substantial number of maintenance
failures” and evidence that the condition of buses was “a matter of great importance
19
to the District.” Id. at 843. “Instead, defendant argue[d] its evidence show[ed] that
the alleged false implied certifications were not material because the District declined
to intervene in the present action, declined to bring an action of its own for breach of
contract, always paid defendant’s monthly invoices in full, and extended the Contract
. . . .” Id. The California Court of Appeal found this reasoning “misplaced” because
the defendant had not established what the court considered “a critical factual
predicate to giving any significance to the District’s reaction to plaintiffs’
allegations—that the District knew about the falsity of defendant’s implied
certifications.” Id. Although the evidence showed the District was aware of the
plaintiffs’ allegations, “there [was] no evidence the District had actual knowledge of
defendant’s wrongdoing—as opposed to allegations of wrongdoing.” Id. The court
therefore reversed the grant of summary judgment because there was “no evidence
suggesting the District would have considered the alleged maintenance failures
immaterial, if the District knew the allegations were true.” Id. at 844.
Contreras is not dispositive or persuasive in this case for several reasons. First
and most obviously, we are not bound by a decision from an intermediate state court
interpreting a state statute patterned after the FCA. Second, unlike the violation here,
the violation in Contreras was material to the purpose of the contract. There, the bus
company failed to comply with bus maintenance requirements, which it admitted
were of great importance to the district and central to the purpose of providing safe
transportation of school children. Significantly, upon confirming multiple violations
of inspection requirements, the district immediately sent a letter stating, “the District
20
‘cannot and will not accept this level of service from the contractor responsible for
the safe transportation of its students,’” and directed the bus company to immediately
remove noncompliant buses. Id. at 846. Third, Contreras appears to be the sole case
in which a court has concluded the government’s actions are irrelevant to the
materiality analysis in the absence of confirmation of the relators’ allegations. Other
courts have found evidence of the government’s inaction after learning of alleged
violations sufficient to establish the lack of materiality. See, e.g., United States ex
rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 828, 831 (7th Cir. 2011)
(finding a lack of materiality in light of the “undisputed fact that the [agency] had
already been notified” of the relator’s allegations and “failed to take action when it
actually learned of the supposed misrepresentation”); United States ex rel. Owens v.
First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 729 (4th Cir. 2010)
(concluding government was not misled by contractor where government signed off
on alleged mistakes and continued to express satisfaction even after investigating
relator’s allegations); United States ex rel. Smith v. Boeing Co., Civil Action No. 05-
1073-MLB, 2014 WL 5025782, at *15, *28 (D. Kan. Oct. 8, 2014) (unpublished)
(addressing materiality in dicta and concluding that “[a]ny lingering doubt on [the
materiality] question [was] dispelled by the actions of the government purchasers
after learning of relators’ claims” because the government continued to certify the
defendant’s aircraft and did not take any remedial action).
Here, USAID’s actions are telling. USAID knew BVSPC had submitted
altered documents in 2012 and that at least some of the altered documents were
21
created on a BVSPC computer and may have been previously submitted to the
Afghan government. But USAID did not withhold or suspend payment pending the
outcome of the investigations of the altered documents. And it did not reserve any
rights while attempting to confirm the truth of Relators’ allegations. Instead, USAID
paid BVSPC’s invoices in full and without reservation. Even if the allegations had
been proved, they were merely tangential to the purpose of the Contract, and the
undisputed evidence is simply incapable of supporting a finding that USAID may
have altered its payment decisions despite the tangential nature of that relationship.
2. Evidence That BVSPC Misled USAID
Relators also argue the evidence shows BVSPC misled USAID in three ways:
First, Relators allege “[t]he summary judgment record showed BVSPC made
unsubstantiated accusations that Relators may be responsible for forging the
diplomas.” Second, Relators rely on BVSPC’s failure to disclose an internal ethics-
committee report suggesting that either Mr. Whitehouse or Mr. Afridi created the
altered documents. Finally, Relators argue the evidence supports an inference that
BVSPC attempted to conceal copies of employee files.
With respect to the latter argument, the undisputed evidence shows that
USAID knew BVSPC could not locate or provide copies of employment files because
it had not maintained organized records. These files might have confirmed that
altered documents were filed with the Afghan government. But the evidence is
undisputed that USAID knew altered documents were actually submitted to the
Afghan government in 2012. Yet USAID continued to make payments to BVSPC,
22
accepted BVSPC’s work on the Project, and expanded the Contract to include
additional work. Under these circumstances, whether BVSPC attempted to conceal
copies of employment files is irrelevant.
In their other two arguments, Relators essentially maintain that BVSPC misled
USAID with respect to the identity of the person who altered the documents. But
there is no evidence from which a reasonable jury could conclude that USAID’s
decisions were affected by the failure to identify the person responsible. At the very
least, USAID knew the documents were created on a BVSPC computer and therefore
that someone at BVSPC was likely responsible for the alterations. Nevertheless,
USAID continued to pay BVSPC without objection. The undisputed evidence simply
does not support Relators’ arguments that USAID may have withheld payment if it
had learned the identity of the responsible person.
3. 2012 Submission of Altered Documents
Finally, Relators argue USAID did not understand the context of BVSPC’s
admission that it submitted altered documents to the Afghan government in 2012.
Relators do not dispute that BVSPC submitted the documents and, upon discovery of
the submission, informed USAID. Rather, Relators reiterate their evidence of alleged
misrepresentations by BVSPC, which they assert prevented USAID from knowing
whether BVSPC had altered the documents and whether BVSPC intentionally or
inadvertently submitted them in 2012.
These arguments, however, cannot be sustained in light of Relators’ summary-
judgment briefing, in which they admitted all facts related to the 2012 submissions.
23
Relators did not dispute that BVSPC submitted altered documents to the Afghan
government on two occasions in 2012 and did not challenge the characterization of
these submissions as “inadvertent.” And Relators admitted “USAID never took any
adverse action against BVSPC despite its awareness of both the altered document
allegations and the inadvertent submissions.” Thus, it is undisputed that USAID
continued to pay even knowing that BVSPC had been accused of submitting altered
documents to the Afghan government in 2011 and that BVSPC inadvertently
submitted such documents on two occasions in 2012.
In sum, the undisputed evidence demonstrates the altered documents were not
material to USAID’s payment under the Contract. We therefore affirm the district
court’s grant of summary judgment based on Relators’ failure to prove materiality.6
III. CONCLUSION
For the above reasons, we AFFIRM the district court’s decision granting
summary judgment in favor of BVSPC.
6
Because we affirm the district court’s decision based on lack of materiality,
we do not address its alternative ruling that Relators failed to come forward with
evidence of damages.
24