Opinion ID: 2967004
Heading Depth: 5
Heading Rank: 2

Heading: Fraud-in-the-Inducement Cases

Text: Another set of cases involves False Claims Act liability for claims that would not be false under the district court's interpretation of the statute -- the fraud-in-the-inducement10 cases. In these cases, courts, _________________________________________________________________ Joslin v. Community Home Health of Maryland, Inc. , 984 F. Supp. 374, 384-385 (D. Md. 1997). Our decision in Berge, 104 F.3d at 1461, holding, in part, that there can be no False Claims Act liability for an omission without an obligation to disclose, also makes questionable an implied certification claim in the Fourth Circuit. We need not address the validity and problems of an implied certification theory of liability here. 9 Several cases, although not rejecting the fraudulent certification theory, involve facts under which such a theory was not successful. See United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266-67 (9th Cir. 1996), cert. denied, ___ U.S. ___, 117 S. Ct. 958 (1997) (specifically accepting fraudulent certification theory, but finding that certification was not prerequisite to funding, and was not false, in any event; involved federal special education funding); Joslin, 984 F. Supp. at 383-384 (accepting fraudulent certification theory, but finding no falsity; involved Medicare reimbursement); United States v. Shaw , 725 F. Supp. 896, 900 (S.D. Miss. 1989) (rejecting implied certification theory, finding that no certification was made; involved bribes to get loans); United States ex rel. Weinberger v. Equifax, 557 F.2d 456, 461 (5th Cir. 1977) (finding no certification was made and none was required; involved alleged violation of Anti-Pinkerton Act). 10 The phrase fraud-in-the-inducement in the False Claims Act context was coined by the court in United States ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 199 (D.C. Cir. 1995). 15 including the Supreme Court, found False Claims Act liability for each claim submitted to the government under a contract, when the contract or extension of government benefit was obtained originally through false statements or fraudulent conduct. The most prominent of these cases is United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943). In that case, the Supreme Court found contractors liable under the False Claims Act for claims submitted under government contracts which the defendants obtained via collusive bidding. Id. at 542.11 The Court found that each claim submitted under the contracts constituted a false or fraudulent claim: This fraud did not spend itself with the execution of the contract. Its taint entered into every swollen estimate which was the basic cause for payment of every dollar paid by the [government] . . . . The initial fraudulent action and every step thereafter taken, pressed ever to the ultimate goal-- payment of government money to persons who had caused it to be defrauded. Id. at 543-44. Based on this language, courts have found False Claims Act violations in other bid-rigging situations, see, e.g., United States v. CFW Construction Co., Inc., 649 F. Supp. 616, 618 (D.S.C. 1986), dismissed on other grounds, 819 F.2d 1139 (4th Cir. 1987); when a contract was originally obtained based on false information or fraudulent pricing, see United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1420 (9th Cir. 1991); United States ex rel. Windsor v. Dyncorp, Inc., 895 F. Supp. 844, 850-51 (E.D. Va. 1995); United States v. General Dynamics Corp. , 19 F.3d 770, 772 & 775 (2d Cir. 1994) (defendant liable for submitting inflated cost estimates in subcontract submitted for approval to government); or when a contract was obtained by a false representation about the ability to perform the contract, cf. United States ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 199 (D.C. Cir. 1995) (court did not reach the question, but suggested it would have upheld such a theory had it been properly presented). But see United States v. Shaw, 725 _________________________________________________________________ 11 This case could also be seen as a false certification case because the Court noted that the defendants had certified that their bids were genuine and not sham or collusive. Hess, 317 U.S. at 543. 16 F. Supp. 896 (S.D. Miss. 1989) (no False Claims Act liability for loans obtained through bribes). Contrary to the district court's decision, in many of the cases cited above the claims that were submitted were not in and of themselves false. In each of the false certification cases the actual claim submitted was not false. In Island Village the HUD housing was actually constructed at fair cost and HUD-qualified purchasers actually moved in; and in Thompson and Pogue the medical services were actually necessary and provided at fair costs. In Marcus , CFW, and Dyncorp, the work contracted for was actually performed to specifications at the price agreed. False Claims Act liability attached, however, because of the fraud surrounding the efforts to obtain the contract or benefit status, or the payments thereunder. As the above cases illustrate, the district court's interpretation of the phrase false or fraudulent claim was erroneous. The phrase false or fraudulent claim in the False Claims Act should be construed broadly. The False Claims Act is intended to reach all types of fraud, without qualification, that might result in financial loss to the Government. ... [T]he Court has consistently refused to accept a rigid, restrictive reading .... United States v. Neifert-White Co., 390 U.S. 228, 232 (1968) (citation and footnotes omitted). The False Claims Act reaches beyond `claims' which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money. Id. at 233. Thus, any time a false statement is made in a transaction involving a call on the U.S. fisc, False Claims Act liability may attach. The test for False Claims Act liability distilled from the statute and the sources discussed above is (1) whether there was a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money or to forfeit moneys due (i.e., that involved a claim).