United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 21, 2016 Decided February 17, 2017
No. 15-7144
UNITED STATES, EX REL. JULIE MCBRIDE,
AND
JULIE MCBRIDE,
APPELLANT
LINDA WARREN AND DENIS MAYER,
APPELLEES
v.
HALLIBURTON COMPANY, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:05-cv-00828)
Victor Aronoff Kubli argued the cause and filed the briefs
for appellant.
Joshua S. Johnson argued the cause for appellees
Halliburton Company, et al. With him on the brief were John
P. Elwood, Tirzah S. Lollar, and John M. Faust. Craig D.
Margolis entered an appearance.
2
Before: KAVANAUGH and WILKINS, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit Judge: Relator-Appellant Julie McBride
(“McBride”) appeals the District Court’s grant of summary
judgment in favor of Defendants-Appellees Halliburton
Company; Kellogg Brown & Root, Inc.; Service Employees
International Inc.; Kellogg Brown & Root Services, Inc.; and
KBR Technical Services, Inc. (collectively, “KBR”). McBride
asserted violations of the False Claims Act (“FCA”), 31 U.S.C.
§ 3729(a), based on KBR’s alleged inflation of “headcount”
data – which purported to track how many U.S. troops
frequented KBR’s recreation centers at certain camps in Iraq –
from July 2004 to March 2005. The District Court granted
summary judgment for KBR, concluding that McBride failed
to offer evidence that any misrepresentation regarding
headcount data (if one existed) was material to the
Government’s decision to pay KBR. We agree; and, taking
into account the Supreme Court’s intervening decision in
Universal Health Services, Inc. v. United States ex rel.
Escobar, 136 S. Ct. 1989 (2016), we affirm.
I.
A.
Under the Logistics Civil Augmentation Program
(“LOGCAP”), the U.S. Army contracts with private companies
to provide a wide range of logistical services. In 2001, the
Army awarded KBR the third contract issued under the
LOGCAP program, known as “LOGCAP III.” 1 LOGCAP III
1
We refer to Appellees collectively but note that Kellogg Brown &
Root Services, Inc. (“KBRSI”) is the only Appellee that was a party
3
did not specify the particular work to be performed by KBR.
Instead, KBR’s contractual responsibilities were set forth in
individual “Task Orders.”
The Task Orders used a cost-plus-award-fee structure, see
48 C.F.R. § 16.405-2, meaning KBR received reimbursement
for the actual costs of the services provided, 2 as well as a “base
fee” of 1% of the pre-determined estimated cost of performing
the services under the Task Order. At the Government’s
discretion, KBR could also earn an “award fee” of up to 2% of
the estimated cost based upon better than average performance.
Shortly after the U.S. military’s March 2003 invasion of
Iraq, KBR began providing services under Task Order 59,
which was effective from June 2003 to May 2005. Task Order
59 required KBR to provide a wide range of support services
for U.S. troops, such as camp construction, power generation,
dining facilities, potable and non-potable water services, fire
protection, laundry, and – relevant here – morale, welfare, and
recreation (“MWR”) services. KBR performed MWR services
by maintaining recreation centers where U.S. troops could
exercise, play games, watch television, and use the internet,
among other things. MWR services were a relatively small part
of KBR’s overall effort, representing about 1.5% of total costs
incurred under Task Order 59.
From November 2004 to March 2005, McBride worked
for KBR as one of ten employees at the MWR facilities at
to the LOGCAP III contract, and the only one that submitted bills to
the Government under that contract.
2
KBR was entitled to bill for its allowable costs – i.e., costs that were
reasonable, allocable to its contract, subject to proper accounting,
and in compliance with contractual terms and any limitations set
forth in 48 C.F.R. subpart 31.2. See 48 C.F.R. §§ 31.201-2 to
31.201-4.
4
Camp Fallujah (also known as Camp B-3) in Iraq. McBride’s
duties included ensuring that soldiers who entered the MWR
facilities signed in to use them. According to McBride, during
the night shift she had the additional responsibility of
compiling “headcount” data which purported to reflect how
many troops had used the facilities each day. McBride
assembled this data in “Situation Reports” or “Sit Reps,” and
distributed them to KBR personnel.
This case centers on McBride’s allegation that KBR
inflated the headcount data, reflecting inaccurate headcount
numbers for MWR facilities at Camp Fallujah and Camp Ar
Ramadi (also known as Camp B-4) from July 2004 to March
2005. McBride alleges various ways in which the headcount
data was inflated, such as counting soldiers each time they
entered different parts of the facilities. McBride also alleges
that KBR destroyed sign-in sheets to conceal the falsity of the
headcount data, and that KBR stopped inflating headcounts
after she reported the practice to her supervisors.
Although McBride has not consistently articulated a
precise theory, her basic contention is that KBR failed to
disclose violations of its obligations to maintain accurate data
to support its costs, and as such, rendered its claims impliedly
false.
B.
McBride filed this case under seal in April 2005. The
District Court unsealed it in July 2006 after the Government
declined to intervene. In October 2006, before KBR was
served with the Complaint, the Defense Contract Audit Agency
(“DCAA”) investigated McBride’s allegations, issuing written
questions to KBR and visiting Camp B-3 to review records and
interview KBR’s personnel. The DCAA did not issue any
5
formal findings, but neither DCAA nor any other Government
agency disallowed or challenged any of the amounts KBR had
billed for MWR services under Task Order 59.
After the District Court unsealed the case, KBR moved to
dismiss. The District Court permitted two of McBride’s claims
to go forward to discovery, including one based on her core
assertion that KBR had used false MWR headcount tallies to
overbill the Government. KBR then moved for summary
judgment, arguing that the contract documents established that
they did not charge the Government for MWR services on a
“per head” basis. The District Court denied that motion
without prejudice pending discovery.
For the next three years, KBR produced over two million
pages of documents, conducted Rule 30(b)(6) depositions of
the Army, and deposed McBride. McBride took no fact
depositions. Discovery neared a close and the parties became
embroiled in a dispute as McBride attempted to expand her
claims to cover a broader time period and additional camps in
Iraq. KBR moved for a protective order to limit any remaining
discovery, and the District Court provided McBride with the
opportunity to file a fourth amended complaint to articulate the
scope of her claims as she saw them. McBride declined those
offers because, in counsel’s view, there was “no legal need to
do so.” J.A. 270. The District Court granted KBR’s motion
for a protective order; and discovery closed after McBride took
KBR’s Rule 30(b)(6) deposition in February 2013.
KBR then filed a motion for summary judgment. In a
Memorandum-Decision and Order dated May 27, 2014, the
District Court granted in part and denied in part KBR’s motion
for summary judgment. The District Court denied KBR’s
motion with regard to McBride’s claims insofar as they were
based on her allegations that KBR inflated the headcount of
6
patrons using MWR facilities at Camps B-3 and B-4 from July
2004 to March 2005. The very next day, the District Court
permitted KBR to file a motion for reconsideration, instructing
McBride to provide it with a proffer of evidence.
On December 10, 2014, the District Court granted KBR’s
motion for reconsideration, and granted its motion for
summary judgment. The District Court expressed doubt that
there was anything “unreasonable or inherently false or
fraudulent about [KBR’s alleged] method of accounting for the
usage of . . . different [MWR] services,” but in any event
concluded that KBR was entitled to summary judgment
because McBride had presented no evidence that the alleged
headcount practices were material to the Government’s
payment decisions. Mem. Decision & Order, No. 05-cv-828,
at 16-18, 16 n.3 (D.D.C. Dec. 10, 2014), J.A. 416-18.
II.
We review the District Court’s grant of summary
judgment de novo. Holcomb v. Powell, 433 F.3d 889, 895
(D.C. Cir. 2006). Summary judgment is appropriate only if
“there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” FED. R.
CIV. P. 56(a); Johnson v. Perez, 823 F.3d 701, 705 (D.C. Cir.
2016). “[T]he mere existence of some alleged factual dispute
between the parties” is not enough to defeat summary
judgment; “the requirement is that there be no genuine issue of
material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
247-48 (1986).
7
III.
McBride brings two claims under the FCA, invoking
Sections 3729(a)(1) and 3729(a)(2). 3 Section 3729(a)(1)
creates liability for any person who “knowingly presents, or
causes to be presented, to an officer or employee of the United
States Government or a member of the Armed Forces of the
United States a false or fraudulent claim for payment or
approval.” 31 U.S.C. § 3729(a)(1) (2006). Section 3729(a)(2)
creates a cause of action against anyone who “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.” Id. § 3729(a)(2).
Both provisions – subsections (a)(1) and (a)(2) – require a
“false or fraudulent claim” for payment; however, the statute
does not define what makes a claim “false” or “fraudulent.” In
United States v. Science Applications International Corp.
(SAIC), 626 F.3d 1257 (D.C. Cir. 2010), we observed that, “[i]n
the paradigmatic case, a claim is false because it ‘involves an
incorrect description of goods or services provided or a request
for reimbursement for goods or services never provided.’” Id.
at 1266 (quoting Mikes v. Straus, 274 F.3d 687, 697 (2d Cir.
2001)). Alternatively, a plaintiff may proceed under the so-
called “certification” theory of liability, which forms the basis
for McBride’s claims in this case. Under this theory, the falsity
of a claim for payment “rests on a false representation of
compliance with an applicable federal statute, federal
regulation, or contractual term.” Id. In SAIC, we explained
that courts may “infer implied certifications from silence”
3
This opinion refers only to the FCA’s pre-2009 text. Congress
amended the FCA by enacting the Fraud Enforcement and Recovery
Act of 2009 (“FERA”), Pub. L. No. 111-21, 123 Stat. 1617. The
parties agree that the post-FERA version of the statute does not apply
retroactively to McBride’s claims.
8
under certain circumstances, id., but in order to establish
liability the plaintiff must prove that “compliance with the legal
requirement in question is material to the government’s
decision to pay,” id. at 1271 (emphasis added). We committed
to “enforcing this [materiality] requirement rigorously” to
“ensure that government contractors will not face onerous and
unforeseen FCA liability as the result of noncompliance with
any of potentially hundreds of legal requirements established
by contract.” Id. (internal quotation marks omitted).
After McBride filed her opening brief, and before KBR
responded, the Supreme Court issued its decision in Universal
Health Services, Inc. v. United States ex rel. Escobar, 136 S.
Ct. 1989 (2016), which endorsed an “implied false
certification” theory under certain circumstances. Specifically,
the Court held that “[w]hen . . . a defendant makes
representations in submitting a claim but omits its violations of
statutory, regulatory, or contractual requirements, those
omissions can be a basis for liability if they render the
defendant’s representations misleading with respect to the
goods or services provided.” 4 Id. at 1999. The Court made
clear that courts should continue to police expansive implied
certification theories “through strict enforcement of the Act’s
materiality and scienter requirements.” Id. at 2002 (quoting
4
The Supreme Court left open the question of whether a claim that
“merely demand[s] payment,” as opposed to one that makes specific
representations about the goods or services provided, can count as
the requisite misleading representation. Universal Health, 136 S. Ct.
at 2000; see also id. (claims with treatment- and specialty-specific
payment codes made representations that healthcare provider had
provided particular types of therapy by licensed professionals, and
were “clearly misleading” in context where provider failed to
disclose “many violations of basic staff and licensing requirements
for mental health facilities”). We need not grapple with that question
here because the lack of materiality is clearly dispositive.
9
SAIC, 626 F.3d at 1270). In particular, “a misrepresentation
about compliance with a statutory, regulatory, or contractual
requirement must be material to the Government’s payment
decision in order to be actionable under the False Claims Act.” 5
Id.
The Supreme Court offered “clarif[ication]” as to how the
“familiar and rigorous” materiality standard should be
enforced, id. at 2002, 2004 n.6, including that courts should
look beyond the express designation of a requirement as a
condition of payment to find it material, id. at 2003 (“[T]he
Government’s decision to expressly identify a provision as a
condition of payment is relevant, but not automatically
dispositive.”). Additionally, courts need not opine in the
abstract when the record offers insight into the Government’s
actual payment decisions. See id. at 2002 (“Under any
understanding of the concept, materiality ‘look[s] to the effect
on the likely or actual behavior of the recipient of the alleged
misrepresentation.’” (alteration in original) (emphasis added)
(quoting 26 RICHARD A. LORD, WILLISTON ON
CONTRACTS § 69:12 (4th ed. 2003))). The Supreme Court
made clear the materiality standard is “demanding,” id. at 2003,
and not “too fact intensive” to resolve on a motion for summary
judgment, id. at 2004 n.6.
5
In Universal Health, although some of the claims were submitted
prior to FERA’s enactment in 2009, the Supreme Court considered
the post-FERA version of the FCA. The defendant did not argue,
and thus the Court “d[id] not consider, whether pre-2009 conduct
should be treated differently.” Universal Health, 136 S. Ct. at 1998
n.1. Here, we assume – as the parties have done – that Universal
Health’s materiality standard applies to the instant dispute. We need
not decide whether (or how) that standard may differ from the one
we used prior to Universal Health.
10
IV.
Turning to McBride’s claims, to successfully oppose
summary judgment, McBride must show that a reasonable
factfinder, drawing all justifiable inferences from the evidence
in her favor, could find that KBR violated a contractual or
regulatory requirement that was material to the Government’s
decision to pay. See United States ex rel. Folliard v. Gov’t
Acquisitions, Inc., 764 F.3d 19, 29 (D.C. Cir. 2014). In doing
so, she “cannot rely on the allegations of her own
complaint . . . , but must substantiate them with evidence.”
Grimes v. District of Columbia, 794 F.3d 83, 94 (D.C. Cir.
2015).
We begin by isolating the purported violation of a
contractual, regulatory, or other legal requirement that KBR
allegedly failed to disclose. McBride stakes her claims on
KBR’s maintenance of false headcount data. Neither
LOGCAP III nor Task Order 59 specifically required MWR
headcount data to be maintained by KBR, much less produced
to the Government. It appears KBR voluntarily undertook to
track this data and, at times, provided it to the Government. 6
Instead, McBride finds her foothold in the Federal
Acquisition Regulation (“FAR”) which provides that the costs
charged to the Government must be “[r]easonable[].” 48
C.F.R. § 31.201-2(a)(1). “A cost is reasonable if, in its nature
and amount, it does not exceed that which would be incurred
by a prudent person in the conduct of competitive business.”
Id. § 31.201-3(a). “What is reasonable depends upon a variety
of considerations and circumstances, including[,] [inter alia] –
6
For example, KBR provided the Government with Logistic Reports
(“Log Reps”), which included aggregate MWR headcount data
across several camps in Iraq.
11
[w]hether it is the type of cost generally recognized as ordinary
and necessary for the conduct of the contractor’s business or
the contract performance.” Id. § 31.201-3(b).
The FAR also holds KBR “responsible . . . for maintaining
records, including supporting documentation, adequate to
demonstrate that costs claimed have been incurred, are
allocable to the contract, and comply with applicable cost
principles. . . .” Id. § 31.201-2(d). The Government is entitled
to disallow costs that are determined to be unreasonable or
unsubstantiated by supporting documentation. Id. § 31.201-2.
McBride refers to these and other FAR requirements as
relevant to her claims, and in doing so, appears to shift between
imprecise theories about unreasonable costs and faulty
supporting documentation. 7
Specifically, McBride alludes to the possibility that KBR
may have used inflated headcounts to justify excessive staffing
levels at its MWR facilities, and that as a result, personnel costs
were unreasonable; but McBride does not actually set out to
prove that staffing was excessive or costs were
“unreasonable.” 8 Instead, her primary contention is that KBR
deprived the Government of the opportunity to examine
7
McBride performed similar maneuvers in the District Court, where
she initially obfuscated her way through summary judgment before
the District Court reconsidered its decision. See Mem. Decision &
Order, No. 05-cv-828, at 10 (D.D.C. Dec. 10, 2014), J.A. 410 (“One
of the reasons that the Court granted Defendants’ motion for
reconsideration is that it has been difficult for the Court to get Relator
McBride’s counsel to articulate the nature of his client’s claims in a
consistent and precise manner.”).
8
To be sure, McBride also does not contend there were any falsities
in KBR’s payment invoices, and acknowledges that all costs claimed
were costs actually incurred for hours that personnel actually
worked.
12
records in order to determine the reasonableness, or
allowability of the costs. The assumption, of course, is that
accurate headcount data was relevant to determining the
reasonableness of costs. However, she offers no evidence in
support of that proposition other than her own say-so, which is
clearly insufficient. See Grimes, 794 F.3d at 94 (“[I]t is well
established that [a plaintiff] cannot rely on the allegations of
her own complaint in response to a summary judgment motion,
but must substantiate them with evidence.”).
Indeed, when pressed by the District Court on this issue,
McBride’s counsel disclaimed the need for evidence because
he was “resting on the proposition that what it takes to service
five people is a lot less than what it takes to service 500
people.” J.A. 391; see also McBride Opening Br. 22 n.6
(reiterating same). Although there is some intuitive attraction
to counsel’s logic, it is irrelevant here. To the contrary, KBR
proffered evidence that when it first began work under Task
Order 59, it had no headcount data to extrapolate from for
staffing decisions because none yet existed; as such, in
accordance with a military manual governing a prior conflict
area, KBR determined staffing based on camp population, not
based on headcounts or actual usage. The Rule 30(b)(6)
witnesses designated by the Army Sustainment Command
(KBR’s contractual counterparty) testified that staffing
determinations were further impacted by factors such as the
types of services available – e.g., a facility with a gym has more
staff than the same facility without a gym – as well as the hours
the facility is open. And although KBR’s precise motive
behind tracking headcounts remains somewhat of a mystery,
the Army witnesses also testified that such headcount data
(false or not) had no bearing on costs billed to the Government,
and that there was no indication the data affected award fee
decisions.
13
Absent any connection between headcounts and cost
determinations, it is difficult to imagine how the maintenance
of false headcounts would be relevant, much less material, to
the Government’s decision to pay KBR. 9 Nevertheless,
McBride persists, claiming as “dispositive” an Administrative
Contracting Officer’s (ACO) statement in a declaration that he
“might” have investigated further had he known false
headcounts were being maintained, and that such an
investigation “might” have resulted in some charged costs
being disallowed. The ACO’s speculative statement could be
true of the maintenance of any kind of false data; it tells us
nothing special about headcounts. At most, the statement
amounts to the far-too-attenuated supposition that the
Government might have had the “option to decline to pay.” See
Universal Health, 136 S. Ct. at 2003 (“Nor is it sufficient for a
finding of materiality that the Government would have the
option to decline to pay if it knew of the defendant’s
noncompliance.”). Given the speculative and generic nature of
the ACO’s statement, and the “rigorous” and “demanding”
materiality standard that must be met, id. at 2002-03,
McBride’s evidence will not suffice to defeat summary
judgment.
Moreover, we have the benefit of hindsight and should not
ignore what actually occurred: the DCAA investigated
McBride’s allegations and did not disallow any charged costs.
In fact, KBR continued to receive an award fee for exceptional
performance under Task Order 59 even after the Government
learned of the allegations. This is “very strong evidence” that
the requirements allegedly violated by the maintenance of
inflated headcounts are not material. See id. at 2003 (“[I]f the
9
Indeed, absent such a connection, it is doubtful that McBride can
show a violation of a regulatory requirement occurred in the first
place (i.e., that headcounts were required to be maintained as
supporting documentation for costs).
14
Government pays a particular claim in full despite its actual
knowledge that certain requirements were violated, that is very
strong evidence that those requirements are not material.”).
V.
Finally, in a few sentences without citing any supportive
authority, McBride asserts that the District Court “erred in
requiring [her] to seek leave to file a fourth amended
complaint” to cover additional camps and time periods.
McBride Opening Br. at 28. In reality, the District Court
appropriately determined McBride needed to amend her
Complaint – and state her claims with particularity – before
expanding her theory in the final stretch of discovery. The
Court afforded McBride multiple opportunities to do so, and
she declined. We have no occasion to review the regrets of her
counsel.
VI.
For the foregoing reasons, we affirm the grant of summary
judgment by the District Court.
So ordered.