Opinion ID: 159646
Heading Depth: 2
Heading Rank: 2

Heading: Other Qui Tam Issues

Text: 51 Defendants also argue on appeal that the FCA contains a materiality requirement which was not met here. 16 We decline to address this argument, however, for Defendants failed to present it to the district court. In neither of their Rule 50 motions did the Defendants mention materiality, or any similar concept such as causation or governmental reliance, as elements which Shaw must, but failed, to satisfy. Defendants simply argued, as discussed above, that a mere violation of the contract cannot legally constitute a false claim. Defendants did not argue to the district court that the failure to practice silver recovery was not material, or that it did not cause the government to pay more than it would have in the absence of AAA's contract violations. This court therefore concludes Defendants have waived this argument for appellate review. We decline to decide whether the contractual provision with which a defendant failed to comply must be material or the non-compliance itself must be a material breach in order to prevail on an implied certification theory under the FCA. 17 See King of the Mountain Sports, Inc. v. Chrysler Corp., 185 F.3d 1084, 1091 n.2 (10th Cir. 1999).
52 Defendants also argue that neither the failure to practice silver recovery nor the work orders can be the basis for false claims under the FCA because the QAE and the Contracting Officers 1) had access to the work orders during the contract and 2) knew about the failure to practice proper silver recovery. Defendants reason that because of this government knowledge, AAA could not have had the requisite intent to violate the FCA. See 31 U.S.C. 3729 (b). 53 Prior to amendments in 1986, the FCA contained the following language: The court shall have no jurisdiction to proceed with any [FCA] suit . . . whenever it shall be made to appear that such suit was based upon evidence or information in the possession of the United States, or any agency, officer, or employee thereof, at the time such suit was brought. 31 U.S.C. 232(C) (1976). This language was removed in 1986, however, and government knowledge of a contractor's wrongdoing is no longer an automatic defense to an FCA action. See United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1420 (9th Cir. 1991); 31 U.S.C. 3729-3733. Nevertheless, there may still be occasions when the government's knowledge of or cooperation with a contractor's actions is so extensive that the contractor could not as a matter of law possess the requisite state of mind to be liable under the FCA. See United States ex rel. Butler v. Hughes Helicopters, Inc., 71 F.3d 321, 327 (9th Cir. 1995); Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, 1421 (9th Cir. 1992). 54 In Butler, for example, the Ninth Circuit affirmed a directed verdict for the government contractor. See Butler, 71 F.3d at 323. Butler argued the Defendant falsified test reports because a different type of tests were performed than those identified in the reports. See id. at 328. The evidence showed, however, that the tests were the subject of discussion between the defendant and the Army, and the Army knew of and had approved the testing method actually used. See id. The Butler court stated, [T]he only reasonable conclusion a jury could draw from the evidence was that [defendant] and the Army had so completely cooperated and shared all information . . . that [defendant] did not 'knowingly' submit false claims . . . . Butler, 71 F.3d at 327 (emphasis added). Similar facts underlie Wang, in which the government had extensive knowledge of all the engineering deficiencies identified by the qui tam relator, and the defendant had an ongoing dialogue with the government about the problems. See Wang, 975 F.2d at 1421. 55 Assuming some level of government knowledge would negate the intent requirement under the FCA as a matter of law, the level of government knowledge in the present case does not do so. It was the plaintiff, Shaw, and not the individual defendants or other AAA employees, who told the government about the failure to practice silver recovery. Additionally, AAA was not forthcoming about silver recovery and repeatedly evaded government employees' questions on the subject. 18 56 As for the work order evidence, this court has already determined that the evidence supports an inference that Defendants falsely inflated the production quantities on some work orders. Moreover, several government employees testified that during the performance of the contract and the settlement of the equitable adjustment claim, including the joint count, they were unaware that any work orders may have been falsely inflated. The government's alleged knowledge of Defendants' actions therefore does not, as a matter of law, negate the evidence of Defendants' intent to submit a false record in support of a claim. See 31 U.S.C. 3729(a)(2).