February 23, 2017 - False Claims Act

DC Circuit Enforces Escobar’s Materiality Requirement

False Claims ActThis week, the D.C. Circuit added to the post-Escobar, materiality jurisprudence with its opinion in United States ex rel. McBride v. Halliburton Co., No. 15-7144 (Feb. 17, 2017).  In its decision, the court affirmed the trial court’s granting of summary judgment in favor of KBR because the misrepresentation alleged by relator Julie McBride did not go to a material requirement of the contract.

McBride, a former KBR employee, had alleged that KBR overbilled the government by inflating data regarding the number of servicemembers who had used KBR-run recreational facilities in Iraq from July 2004 to March 2005.  She also claimed that the company destroyed sign-in sheets to conceal the falsity of the headcount data.  Though her legal theory was less than precise, McBride essentially argued that KBR used inflated headcounts to justify excessive staffing levels at its recreational facilities and that the personnel costs it charged the government were unreasonable as a result.

The problem with this theory, however, was that neither LOGCAP III nor the task order governing KBR’s work required headcount data to be maintained or produced to the government.  Army witnesses further testified that KBR’s (voluntarily collected and submitted) headcount data had no bearing on costs billed to the government and there was no indication that the data affected the Government’s award fee decisions.  Given the lack of any connection between headcounts and cost determinations, the D.C. Circuit found it “difficult to imagine how the maintenance of false headcounts would be relevant, much less material, to the government’s decision to pay KBR.”  McBride submitted a declaration by an Administrative Contracting Officer in which he stated that he “might” have investigated had he known the headcount data was inflated and that such an investigation “might” have led him to disallow some of the charged costs.  Citing Escobar, the court likened the statement to one that the government “might have had the ‘option to decline to pay,’” and held that McBride’s evidence did not meet the “rigorous and demanding” materiality standard required by Escobar.

As the trial court had granted summary judgment prior to the Supreme Court’s ruling in Escobar, this case is an example of the proper application of the materiality standard both pre- and post-Escobar.