Court Opinion

ID: 2663920
Source: CourtListenerOpinion
Date Created: 2014-04-04 02:56:48.874596+00
Date Added: 2024-06-11T13:23:02.162856
License: Public Domain

UNITED STATES DISTRICT COURT
                               FOR THE DISTRICT OF COLUMBIA
                                    )
UNITED STATES OF AMERICA,           )
                                    )
              Plaintiff,            )
                                    )
          v.                        )                                                        10-cv-530 (RCL)
                                    )
KELLOGG BROWN & ROOT SERVICES, INC. )
                                    )
              Defendant.            )
                                    )

                                      MEMORANDUM OPINION

I.      INTRODUCTION

        In the midst of the Civil War, Congress passed the False Claims Act to stop the

“plundering of the public treasury” that had resulted from the “frauds and corruptions practiced

in obtaining pay from the Government during the present war.” Act of Mar. 2, 1863, ch. 67, § 1,

12 Stat. 696; United States v. McNinch, 356 U.S. 595, 599 (1958); Cong. Globe, 37th Cong., 3d

Sess. 955–56 (1863) (statement of Sen. Jacob M. Howard).1 Invoking the twenty-first century

iteration of the statute, 31 U.S.C. § 3729, the United States brings this action against Kellogg

Brown & Root Services, Inc. (“KBR”) to recover civil penalties and treble damages on more

than $100 million in allegedly false claims arising from “the present war” in Iraq. The

government also sues under breach of contract, unjust enrichment, and payment by mistake

causes of action. KBR, citing a lack of clarity in the contract and its support for the military

amid daunting security conditions in Iraq, moves to dismiss the complaint. For the reasons set

forth below, that motion will be denied with respect to the False Claims Act and breach of

contract counts and granted on the unjust enrichment and payment by mistake counts.

1
 For more on the history of the False Claims Act, see J. Randy Beck, The False Claims Act and the English
Eradication of Qui Tam Legislation, 78 N.C. L. Rev. 539 (2000).

                                                        1
II.    BACKGROUND

       A.      Factual History

               1.     The LOGCAP III Contract

       On December 14, 2001, the Army awarded KBR a contract to provide logistical services

such as “transportation, maintenance, facilities management, and dining facilities” in “support of

military operations around the world.” Compl. ¶ 5, Apr. 1, 2010, ECF No. 1; see Def.’s Mot.

Dismiss [“D.’s Mot.”], Ex. 2, ECF No. 3-3 (reproducing contract) [“LOGCAP III”]. The

contract, known as LOGCAP III—an acronym for the Army’s Logistics Civil Augmentation

Program—operates on an “indefinite delivery/indefinite quantity” basis. Compl. ¶¶ 5–6. In

other words, the contract does not specify a fixed amount of work. Rather, the government

assigns tasks to KBR through a series of individual orders and then reimburses the contractor for

the costs of performing each order, plus a one percent fee. Id. ¶ 6. KBR can also earn an award

fee of up to two percent, based on the government’s evaluation of its performance. Id. If KBR

allocates work to a subcontractor, as it frequently does, KBR pays the subcontractor and then

submits its costs to the government for reimbursement. Id. ¶ 7; see also United States ex rel.

Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 373–74 (4th Cir. 2008) (explaining and

interpreting the LOGCAP contract in a different dispute); United States ex rel. McBride v.

Halliburton Co., No. 05-828 (HHK), WL 1954441, at *1 (D.D.C. July 5, 2007) (same).

        After the war in Iraq commenced in 2003, KBR received task orders to provide services

to American troops deployed there. Compl. ¶ 7; D.’s Mot. 17. The government alleges that

some of the claims KBR submitted based on task orders between 2003 and 2006 included false

statements in violation of the False Claims Act (“FCA”). Specifically, the United States charges

that KBR knowingly billed the government for the cost of private security contractors in Iraq, an

                                                2
expense the government argues is forbidden by the contract and thus a false claim under the

statute. 31 U.S.C. § 3729(a)(1); Compl. ¶ 34.

       Several provisions of the LOGCAP III contract are directly relevant to this allegation.

All are drawn from “Section H, Special Contract Requirements,” which “addresses the

deployment of contractor personnel into a theater of operations in support of a contingency or

exercise.” LOGCAP III, § H, at 96. The contract notes that the guidance in this section “is not

all-inclusive nor are all items required for all situations . . . . Each contingency will evolve

differently depending upon theatre commander’s guidance impacting on the deployment. Id.

       Clause H-16, titled “Force Protection,” provides:

               While performing duties [in accordance with] the terms and
               conditions of the contract, the Service Theater Commander will
               provide force protection to contractor employees commensurate
               with that given to Service/Agency (e.g. Army, Navy, Air Force,
               Marine, [Defense Logistics Agency]) civilians in the operations
               area unless otherwise stated in each task order.

Id. ¶ H-16, at 98.

       Clause H-21, titled “Weapons and Training,” provides, in relevant part:

               Whether contractor personnel will be permitted to carry a
               government furnished weapon for self-defense purposes in the
               Area of Operations (AO) is at the discretion of the Theater
               Commander. However, contractor personnel will not possess
               personally owned firearms in the AO. The government may at its
               discretion issue weapons and ammunition (M9 Pistols) for self-
               defense to the contractor employees. . . . The contractor shall
               ensure that its employees adhere to all guidance and orders issued
               by the Theater Commander or his/her representative regarding
               possession, use, safety, and accountability of weapons and
               ammunition.

Id. ¶ H-21, at 101.

       Clause H-13, titled “Management,” provides, in relevant part:

                                                  3
                The contractor shall ensure that all personnel hired by or for the
                contractor will comply with all guidance, instructions, and general
                orders applicable to U.S. Armed Forces and DoD civilians as
                issued by the Theater Commander or his/her representative. This
                will include any and all guidance and instructions issued based
                upon the need to ensure mission accomplishment, force protection,
                and safety, unless directed otherwise in the task order . . . . The
                contractor shall comply, and shall ensure that all deployed
                employees, subcontractors, subcontractors employees, invitees,
                and agents comply with pertinent Service and Department of
                Defense directives, policies, and procedures, as well as federal
                statutes, judicial interpretations and international agreements . . .
                applicable to U.S. Armed Forces or U.S. citizens in the area of
                operations.

Id. ¶ H-13, at 96.

        The government argues that this clause incorporates U.S. Central Command

(“CENTCOM”) General Order No. 1A, issued in December 2000, and CENTCOM General

Order No. 1B, issued in March 2006. Compl. ¶¶ 14, 17; D.’s Mot., Exs. 20 & 21, ECF No. 3-21

[“Gen. Ord. 1A”] & ECF No. 3-22 [“Gen. Ord. 1B”]. These orders apply to “civilians serving

with, employed by, or accompanying the Armed Forces of the United States,” Gen. Ord. 1A, at

1; Gen. Ord. 1B, at 1, and prohibit the “purchase, possession, use or sale of privately owned

firearms, ammunition, explosives, or the introduction of these items into” CENTCOM’s area of

responsibility, which includes Iraq. Gen. Ord. 1A, ¶ 2(a); Gen. Ord. 1B, ¶ 2(a).

        In November 2005, KBR and the Army revised the LOGCAP III contract to incorporate

Defense Federal Acquisition Regulation Supplement (“DFARS”) § 252.225-7040 (June 6, 2005).

Compl. ¶ 18; D.’s Mot., Ex. 25, Nov. 2, 2005, ECF No. 3-26 [“Mod. 12”]. The amendment,

labeled Modification 00012, reiterates KBR’s responsibility to comply with all applicable

“United States regulations, directives, instructions, policies, and procedures,” Mod. 12 at ¶ I-

6(c)(3)(d)(3), and “orders, directives, and instructions issued by the Combatant Commander

related to force protection, security, health, [and] safety . . . .” Id. at ¶ I-6(c)(3)(d)(4). The

                                                    4
modification also provides: “If the Contractor requests that its personnel performing in the

theater of operations be authorized to carry weapons, the request shall be made through the

Contracting Officer to the Combatant Commander. The Combatant Commander will determine

whether to authorize in-theater contractor personnel to carry weapons and what weapons will be

allowed.” Id.

                  2.     Related Regulations

           In addition to the LOGCAP III contract, CENTCOM General Orders, and contract

modification described above, several related regulations are relevant to this case.

           The Coalition Provisional Authority (“CPA”), which was the official governing authority

of Iraq from the fall of Saddam Hussein’s regime in April 2003 to the return of sovereignty to the

new Iraqi government in June 2004, Compl. ¶ 20 n.1, issued Order No. 3: Weapons Control on

December 31, 2003. Compl. ¶ 20; D.’s Mot., Ex. 22, Dec. 31, 2003, ECF No. 3-23 [“CPA Order

3”]. Section 3 of the Order, titled “Authorized Possession and Use of Firearms and Military

Weapons,” provides that “[g]roups and individuals who have been authorized to carry weapons

in the course of their duties by the CPA or Commander, Coalition Forces or their duly authorized

delegates” are authorized to “possess and use issued Firearms and Military Weapons, including

Special Category Weapons.” CPA Order 3, § 3, ¶ 1(c). The Order also provides that “[p]rivate

security firms may be licensed by the Ministry of the Interior to carry weapons and use licensed

Firearms and Military Weapons, excluding Special Category Weapons, in the course of their

duties, including in public places,” id. ¶ 2, and that “[i]ndividuals not otherwise authorized to

possess or use Firearms or Military Weapons by this or any other CPA instrument may apply for

weapons authorization” through a licensing system “administered by the Ministry of Interior.”

Id. § 5.

                                                  5
       On June 26, 2004, the CPA issued Memorandum Number 17: Registration Requirements

for Private Security Companies (PSC) to “provide[] guidance for PSC that intend to operate

within Iraq.” Compl. ¶ 20; D.’s Mot., Ex. 23, § 1, June 26, 2004, ECF No. 3-24 [“CPA Mem.

17”]. The memorandum requires private security contractors to obtain a business license and an

operating license or a temporary operating license from the Iraqi Ministry of Interior. Id. § 2.

“Where an Operating License is granted . . . , the MOI shall issue Weapons Cards to those PSC

employees who will bear arms as part of their duties. Such Weapons Card shall constitute a

license to possess and use firearms.” Id. §6, ¶ 1.

       In December 2005, CENTCOM issued a “Policy and Delegation of Authority for

Personal Protection and Contract Security Service Arming of DoD Civilian Person[nel].” D.’s

Mot., Ex. 24, Dec. 23, 2005, ECF No. 3-25. The message provided that, “Within Iraq, the use of

properly licensed PSC under CPA Memorandum 17 . . . is permitted to protect civilians,

contractors, non-military facilities and equipment,” as well as “to protect static military facilities

and any military personnel and equipment within that facility. Id. ¶ 2.C.2.A–B. CENTCOM

broadened the policy the next year to include protection of “military personnel and military

equipment outside of static facilities (such as for personal security details and convoys) when

risk of direct contact with uniformed enemy is not probable.” D.’s Mot., Ex. 26, ¶ 2.C.2.B, Nov.

7, 2006, ECF No. 3-27.

               3.      Claims Submitted by KBR Involving Private Security in Iraq

       The contract provisions and regulations above form the backdrop for the issue at the

center of this case—KBR’s claims for reimbursement of expenses involving private security

contractors. There is no dispute that KBR subcontractors employed private security contractors,

or that KBR submitted claims to the government requesting reimbursement of those expenses.

                                                     6
D.’s Mot. 22; Id., Ex. 13, ¶ 1, Apr. 24, 2008, ECF No. 3-14 [“KBR’s ASBCA Compl.”]

(acknowledging “the use by KBR’s LOGCAP III subcontractors of armed private force

protection” while arguing that this use was “well known to the Army”). The question, rather, is

whether KBR’s submission of these claims constitutes a False Claims Act violation or supports

the government’s allegations of breach of contract, unjust enrichment, and payment by mistake.

       B.      Procedural History

       In February 2007, the Defense Contract Audit Agency (“DCAA”) notified KBR that it

was disallowing approximately $19.6 million in reimbursement payments stemming from the use

of armed private security by one of KBR’s subcontractors, ESS Support Services Worldwide

(“ESS”). Id. ¶ 47; D.’s Mot. 20. The government explained that these expenses were not

allowable under Clause H-16 of the LOGCAP III contract, which provides that the military is

responsible for supplying force protection to civilian contractors in war zones. D.’s Mot. 21.

Ultimately, the government identified more than $100 million in payments related to private

security that it deemed improper. D’s Mot. 22; United States’ Opp’n KBR’s Mot. Dismiss 18,

June 25, 2010, ECF. No. 9 [“U.S. Opp’n”].

       KBR challenged the denial of payment by filing a certified claim under the Contract

Disputes Act (“CDA”). D’s Mot. 22. The contracting officer did not issue a final decision on

the claim, which constitutes a “deemed denial” under the CDA. Id. KBR then appealed to the

Armed Services Board of Contract Appeals (“ASBCA”), contending that nothing in the

LOGCAP III contract prohibits the use of private security contractors and that the Army had

previously paid claims that it knew included private security expenses. Id. at 21–22. The

government responded by reasserting that Clause H-16 assigned the military exclusive

responsibility for providing security and argued that Clauses H-13 and H-21 barred civilian

                                                7
contractors in Iraq from carrying weapons, thus rendering the private security expenses in

violation of the contract. Id. at 22.

        On April 1, 2010, the United States filed suit in this Court.2 Compl. The government

alleges that KBR violated the FCA when it “hired private armed security contractors Triple

Canopy, Omega Risk Solutions, and Al Dhahir to provide personal security details for its

executives in Iraq . . . used four of its own employees as armed security for executives . . . [and]

billed the dominant portion of the costs attributable to those services to the Army indirectly

through an overhead account.” Id. ¶ 22. The government additionally alleges that “more than 30

of KBR’s other subcontractors used private armed security in Iraq without required

authorization,” id. ¶ 23, including ESS, which “incurred significant costs for unauthorized

private armed security costs, which KBR passed on to the Army, plus associated fees, under

LOGCAP III.” Id. ¶ 24.

        The government claims that “KBR knew and understood that the use of private security

without authorization by the US CENTCOM Commander . . . without approval by the

contracting [officer] . . . and without the companies being licensed and registered by the Iraqi

Ministry of the Interior, was prohibited under LOGCAP III and other authorities incorporated

into the contract by reference.” Id. ¶ 25. As evidence that KBR “knew that any claims for such

costs would be false,” id., the government cites internal KBR e-mails apparently acknowledging

that subcontractors’ use of private security details “could be considered unallowable . . . as the

government has the responsibility to provide force protection,” id. ¶ 29, and suggesting that

“KBR should not hire subcontractors who used private security because ‘it will effect a material

change in [the] contract.’” Id. ¶ 30. The government also alleges that “the Army and KBR

2
  When it filed suit in this Court, the government moved to stay the proceedings in the ASBCA pending a resolution
to its False Claims Act action here. That motion was denied by the ASBCA. Kellogg Brown & Root Services, Inc.,
ASBCA Nos. 56358, 57151, 2011-1 BCA ¶ 34,614. The parties continue to litigate KBR’s appeal in that court.

                                                        8
discussed modifying LOGCAP III to allow the use of private armed security,” but that the

modification was “never executed.” Id. ¶ 32. These discussions, the government claims,

“demonstrate that KBR knew and understood that . . . without such a modification, KBR could

not charge the Army for the costs of private armed security services.” Id. In the government’s

view, the fact that KBR submitted the claims for repayment notwithstanding this knowledge

violates the FCA. Id. ¶ 34 (citing 31 U.S.C. § 3729(a)(1)).

        Just over two months after the filing of the complaint, KBR moved to dismiss. D.’s Mot.

1. KBR contends that the government has not pled its fraud allegations with the particularity

demanded by Federal Rule of Civil Procedure 9(b), id., at 12; that the complaint fails to state a

cognizable legal claim and thus cannot survive a motion to dismiss under Rule 12(b)(6), id. at

11–12; and that this Court should dismiss the breach of contract count under Rule 12(b)(1)

because that claim is properly adjudicated in the ASBCA, id. at 13. The government filed its

opposition to KBR’s motion in June, U.S. Opp’n; KBR replied in July, D.’s Reply, July 12,

2010, ECF No. 12 [“D.’s Reply”]; and the parties engaged in several months of motions practice.

Among the numerous filings was a motion for partial summary judgment on liability by the

government. United States’ Mot. Partial Summ. J., Oct. 14, 2010, ECF No. 32. On April 25,

2011, Judge Roberts issued an order resolving or setting aside all other motions—including the

partial summary judgment motion— until the Court ruled on the motion to dismiss, “which has

the potential to dispose of all the claims in the complaint.” Minute Order, Apr. 25, 2011, ECF

No. 51. The Court now turns to that task.3

III.    LEGAL STANDARD

        A.      Rule 9(b)

3
 On May 5, 2011, the case was transferred by consent from Judge Roberts to Chief Judge Lamberth. Reassignment
of Civil Case, May 5, 2011, ECF No. 52.

                                                      9
       Federal Rule of Civil Procedure 9(b) requires that a party “alleging fraud or mistake . . .

must state with particularity the circumstances constituting fraud or mistake. Malice, intent,

knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P.

9(b). As this Court has explained, “[t]he purpose of Rule 9(b) is to ensure that defendants have

sufficient notice of the claims against them to prepare a defense.” United States ex rel. Ortega v.

Columbia Healthcare, Inc., 240 F. Supp. 2d 8, 18 (D.D.C. 2003). This means that “the pleader

must state the time, place and content of the false misrepresentations, the fact misrepresented and

what was retained or given up as a consequence of the fraud.” Kowal v. MCI Commc’ns Corp.,

16 F.3d 1271, 1278 (D.C. Cir. 1994) (quoting United States v. Cannon, 642 F.2d 1373, 1385

(D.C. Cir. 1981)). Although this constitutes a “heightened pleading standard . . . Rule 9(b) is still

subject to the general ‘short and plain statement’ command set out in Rule 8.” United States ex

rel. Brown v. Aramark Corp., 591 F. Supp. 2d 68, 72 (D.D.C. 2008). Thus, while Rule 9(b)

“requires more particularity than Rule 8,” it “does not completely vitiate the liberality of Rule 8.”

Ortega, 240 F. Supp. 2d at 18.

       B.      Rule 12(b)(6)

       A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a complaint.

Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). To satisfy this test, a complaint must

contain “a short and plain statement of the claim showing that the pleader is entitled to relief, in

order to give the defendant fair notice of what the . . . claim is and the grounds upon which it

rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “[W]hen ruling on a defendant’s

motion to dismiss, a judge must accept as true all of the factual allegations contained in the

complaint,” Atherton v. District of Columbia, 567 F.3d 672, 681 (D.C. Cir. 2009), and grant a

plaintiff “the benefit of all inferences that can be derived from the facts alleged.” Kowal, 16 F.3d

                                                 10
at 1276. However, a court may not “accept inferences drawn by plaintiffs if such inferences are

unsupported by the facts set out in the complaint.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949

(2009). In other words, “only a complaint that states a plausible claim for relief survives a

motion to dismiss.” Id.

       C.      Rule 12(b)(1)

       Federal district courts are courts of limited jurisdiction, Kokkonen v. Guardian Life Ins.

Co., 511 U.S. 375, 377 (1994), and a Rule 12(b)(1) motion for dismissal presents a threshold

challenge to a court’s jurisdiction. Haase v. Sessions, 835 F.2d 902, 906 (D.C. Cir. 1987). In

evaluating such a motion, the Court must “accept as true all of the factual allegations contained

in the complaint.” Wilson v. District of Columbia, 269 F.R.D. 8, 11 (D.D.C. 2010) (citing

Leatherman v. Tarrant Cnty. Narcotics Intel. & Coordination Unit, 507 U.S. 163, 164 (1993)),

but it may also consider relevant materials outside the pleadings. Settles v. U.S. Parole Comm’n,

429 F.3d 1098, 1107 (D.C. Cir. 2005). The Court must remain cognizant that “the plaintiff’s

factual allegations in the complaint will bear closer scrutiny in resolving a 12(b)(1) motion than

in resolving a 12(b)(6) motion for failure to state a claim.” Wilson, 269 F.R.D. at 11 (quotations

omitted). In defending against a Rule 12(b)(1) motion, the plaintiff bears the burden of showing

that jurisdiction exists. Khadr v. United States, 529 F.3d 1112, 1115 (D.C. Cir. 2008).

IV.    ANALYSIS

       A.      False Claims Act Allegations

       The False Claims Act provides that “any person who knowingly presents, or causes to be

presented, a false or fraudulent claim for payment or approval . . . is liable to the United States

government for a civil penalty of not less than $5,000 and not more than $10,000 . . . plus 3

times the amount of damages which the government sustains because of the act of that person.”

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31 U.S.C. § 3729(a)(1). As both parties correctly state, a sufficient FCA complaint must allege

that the “(1) defendant submitted a claim to the government; (2) which was false; and (3) which

the defendant knew was false.” D.’s Mot. 27; U.S. Opp’n 20 (quoting United States ex rel.

Hockett v. Columbia/HCA Healthcare Corp., 498 F. Supp. 2d 25, 57 (D.D.C. 2007) (internal

citation and quotation marks omitted)). The FCA defines “knowingly” as a situation in which

the defendant “has actual knowledge of the information . . . acts in deliberate ignorance of the

truth or falsity of the information . . . or . . . acts in reckless disregard of the truth or falsity of the

information.” 31 U.S.C. § 3729(b)(1)(A). Importantly, the FCA provides that demonstrating a

violation “requires no proof of specific intent to defraud.” Id. § (b)(1)(B).

        Here there is no dispute about prong (1). KBR submitted numerous claims to the Army

seeking reimbursement of the expenses. KBR’s ASBCA Compl. ¶ 1. The government argues

that prong (2) is satisfied because the claims were false in that they included private security

expenses not allowed under the LOGCAP III contract. U.S. Opp’n 9. The government contends,

based in part on internal KBR e-mails, that the complaint meets the requirement of prong (3)

because KBR knew that the expenses for private security were not allowed by the contract.

Compl. ¶¶ 25–35. The Court addresses KBR’s responses in turn.

                1.       KBR’s Motion to Dismiss Based on Rule 9(b)

        As a threshold matter, KBR argues that the government has failed to plead “with

particularity the circumstances constituting fraud” in accordance with Rule 9(b). D.’s Mot. 34

(quoting Fed. R. Civ. P. 9(b)). KBR accurately notes that the Rule 9(b) standard applies to FCA

claims. Id. (citing United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551–52 (D.C.

Cir. 2002)). As noted above, an FCA plaintiff “must state the time, place and content of the false

misrepresentations, the fact misrepresented and what was retained or given up as a consequence

                                                     12
of the fraud.” Kowal, 16 F.3d at 1278. Put more colloquially, an FCA plaintiff must identify the

“who, what, when, where, and how of the alleged fraud.” Wilson, 525 F.3d at 379 (internal

quotation marks and citation omitted).

       The government meets that test. The complaint adequately alleges the “who” (KBR,

Compl. ¶ 4), the “what” (claims for expenses based on private security, id. ¶ 12), the “when”

(between 2003 and 2006, id. ¶ 7), the “where” (in Iraq, id.), and the “how” (by submitting claims

for expenses it knew were prohibited by the contract, id. ¶¶ 22–32) of the alleged fraud. The

government specifically alleges that KBR “awarded subcontracts to three companies solely for

the purpose of providing private security to its executives and other personnel,” id. ¶ 26, “armed

four of its own employees,” id., and “awarded subcontracts to more than 30 companies that used

private armed security in connection with performing dining facilities management and other

services,” id. ¶ 27, all without obtaining the approval required by the contract. Id. ¶¶ 26–27.

The complaint also excerpts quotations from internal KBR e-mails that substantiate the

allegation that KBR submitted the claims knowing that they were not allowed by the contract.

Id. ¶¶ 28–32.

       While the government conceivably could have provided additional details—such as

individual claim numbers or the specific submissions that are allegedly false—the same could be

said of virtually every complaint, particularly those based on multiple claims and lengthy,

complex government contracts. What matters here is that the complaint fulfills Rule 9(b)’s

underlying purpose of providing KBR with “sufficient notice of the claims against [it] to prepare

a defense,” Ortega, 240 F. Supp. 2d at 18, especially given that KBR presumably has access to

the claims it submitted. “The D.C. Circuit has taken a generous approach to pleadings” in the

FCA context, finding that “a complaint is not deficient even if it fails to set out a prima facie case

                                                 13
as an initial matter.” Id. (citing Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113–14 (D.C.

Cir. 2000)). The Fourth Circuit has likewise “counseled [that] in the context of the FCA, ‘A

court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the

defendant has been made aware of the particular circumstances for which she will have to

prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those

facts.’” Id. (citing Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.

1999)). The Court here is satisfied that the government has presented enough of a case to enable

KBR to prepare a defense based on the evidence that it possesses and may seek from the

government through the discovery process. The argument that the complaint should be

dismissed based on Rule 9(b) is therefore rejected.

               2.      KBR’s Motion to Dismiss Based on Rule 12(b)(6)

       KBR also moves to dismiss the FCA allegations for failure to state a claim under Rule

12(b)(6). D.’s Mot. 20. A successful FCA claim generally occurs in one of three forms. See

Hockett, 498 F. Supp. 2d at 64. The first and most obvious form—“the paradigmatic case,” as

the D.C. Circuit has called it—is the “factually false” claim, in which a contractor or other

claimant submits information that is untrue on its face. United States v. Sci. Applications Int’l

Corp. (SAIC II), 626 F.3d 1257, 1266 (D.C. Cir. 2010). For example, a factually false claim may

include “an incorrect description of goods or services provided or a request for reimbursement

for goods or services never provided.” Id. (quoting Mikes v. Straus, 274 F.3d 687, 697 (2d Cir.

2001)). The FCA reaches beyond “factually false” claims to encompass two types of “legally

false” claims. Id. These claims do not involve information that is false on its own terms, but

instead “rest[] on a false representation of compliance with an applicable federal statute, federal

                                                 14
regulation, or contractual term.” Id.; see also Harrison, 176 F.3d at 786 (collecting cases

involving legally false claims).

       A legally false claim, also known as a “false certification,” can be either “express” or

“implied.” SAIC II, 626 F.3d at 1266. An express false certification occurs when a claimant

explicitly represents that he or she has complied with a contractual condition, but in fact has not

complied. Mikes, 274 F.3d at 698. For example, a law student who submits an essay signed,

“This is my own work,” would be guilty of an express false certification if the essay had actually

been lifted from an online source. By contrast, an implied false certification occurs when the

claimant makes no affirmative representation but fails to comply with a contractual or regulatory

provision “where certification was a prerequisite to the government action sought.” SAIC II, 626

F.3d at 1266 (quoting United States ex. rel. Siewick v. Jamieson Sci. & Eng’g, Inc., 214 F.3d

1372, 1376 (D.C. Cir. 2000)). To return to our misguided law student, he would commit an

implied false certification by turning in a plagiarized essay—even without testifying to its

authenticity—if a law school guideline requiring that “All submissions must be your own work,”

was a prerequisite for submitting work in the course.

                       a.      Factual Falsity

       Somewhat surprisingly, the government argues initially that the KBR claims at issue here

fall into the first category of “factually false” claims. U.S. Opp’n 9. Unlike a typical FCA

plaintiff alleging factual falsity, the government does not suggest that KBR sought

reimbursement for work it did not perform or mischaracterized the services it provided—

disguising private security expenses as dining facilities expenses, for example. There is no

dispute about the number, amount, or factual accuracy of the submitted claims. Rather, the

government asserts that “KBR is liable under the FCA for submitting claims for costs that it

                                                 15
knew were not allowed under or even within the scope of the contract at issue.” Id. In other

words, under the government’s theory, the claims are “false” precisely because they are

“disallowed” by the contract. Id. at 13. The government cites no case providing direct support

for this interpretation of factual falsity.4 The reason for the lack of authority is clear:

determining the scope of a contract is a quintessentially legal, not factual, question.

         To some degree this distinction is an exercise in semantics, but it could have serious

repercussions given the legal context. If “not allowable under contract” can be substituted

directly for “false,” the difference between a breach of contract claim and an FCA claim could

evaporate. Courts have consistently held that the FCA does not have this effect. As Judge

Wilkinson explained in Wilson, “If every dispute involving contractual performance were to be

transformed into a[n] . . . FCA suit, the prospect of litigation in government contracting would

literally have no end.” Wilson, 525 F.3d at 373. The FCA “surely cannot be construed to

include a run-of-the-mill breach of contract action that is devoid of any objective falsehood.” Id.

at 378. To blur the distinction between fraud and breach of contract, then, is to contradict the

purpose of the statute. “Allowing [the FCA] to be used in run-of-the-mill contract disagreements

. . . would burden, not help, the contracting process, thereby driving up costs for the government

and, by extension, the American public.” United States ex rel. Owens v. First Kuwaiti Gen.

Trading & Constr. Co., 612 F.3d 724, 726–27 (4th Cir. 2010) (Wilkinson, J.).

                           b.       Implied False Certification

4
  The government refers to two cases during its discussion of its factual falsity theory. One is Hockett, in which this
Court held that certain Medicare claims were not factually false because they did not contain factual inaccuracies
such as “misstat[ing]the services actually rendered” or “over-reporting the number of patients . . . treated or the
length of their stays.” Hockett, 498 F. Supp. 2d at 64. The other is an unreported 1994 opinion from the Northern
District of Iowa, United States v. Vector Corp., No. 93-48, 1994 U.S. Dist. LEXIS 21330 (N.D. Iowa Apr. 14,
1994), which explains that a company that mislabeled an “expense as a direct expense knowing it not to be a direct
expense and further mislead the government as to the services being supplied . . . would qualify as [submitting] a
fraudulent claim.” Id. at *10. But the court never specified that this would be considered a “factually false” claim,
as distinguished from a legally false claim. Furthermore, the unreported opinion from a fellow district court in a
different jurisdiction lacks controlling authority here.

                                                          16
        While the United States’ contention that KBR’s claims are factually false is unavailing,

the government argues alternatively that KBR violated the FCA by making a legally false

claim—an implied false certification. U.S. Opp’n 22. KBR suggests that the United States has

waived this argument, D.’s Reply 7, but that is plainly incorrect because the government

explicitly advocates it in opposing the motion to dismiss. U.S. Opp’n 22. Specifically, the

government argues that KBR impliedly falsely certified that its claims for reimbursement

complied with the terms of the LOGCAP III contract, which, in the government’s view,

prohibited expenses for private security. Id. at 23. As explained above, the scope of the contract

is primarily a legal question, so the government’s FCA allegation is properly framed in terms of

legal falsity.

        To prevail on this type of claim, the government must show not only that a defendant

knowingly made an impliedly false certification but also that the “certification was a prerequisite

to the government action sought.” Siewick, 214 F.3d at 1376. This is common sense. If a

contractor violates an obscure statutory provision or minor contractual term while submitting a

claim based on unrelated activities, it should not face the severe penalties of the FCA for merely

tangential violations. This was the position taken by the D.C. Circuit in Siewick, in which the

court found that a government contractor submitting claims arising from an infrared sensor

technology contract was not liable under the False Claims Act even if it had violated a separate,

unrelated ethics statute aimed at curbing revolving door abuses by former government

employees. Siewick, 214 F.3d at 1374–76; cf. United States ex rel. Lamers v. City of Green Bay,

168 F.3d 1013, 1019–20 (7th Cir. 1999) (explaining that the “FCA is not an appropriate vehicle

for policing technical compliance with administrative regulations”); United States ex rel.

Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir. 1997) (noting the

                                                17
court’s holding that “the FCA is not an enforcement device for the Anti-Pinkerton Act”); United

States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996) (holding that “[v]iolations of

laws, rules, or regulations alone do not create a cause of action under the FCA”). This

understanding is consistent with the longstanding and broadly accepted principle that a plaintiff

making a tort claim based on a statutory violation must have suffered an injury of the type the

statute was designed to prevent.5 Thus, the “FCA does not provide a remedy for every violation

of a statute or regulation,” Ortega, 240 F. Supp. 2d at 19, and there is “no liability under [the

FCA] for a false statement unless it is used to get a false claim paid.” United States v. Southland

Mgmt. Corp., 326 F.3d 669, 675 (5th Cir. 2003) (en banc).

         KBR contends that, even if it violated the various contractual provisions the government

asserts it did, these violations are akin to the ones discussed above in that they are not

prerequisites for payment under the contract. In other words, KBR argues that LOGCAP III

does not condition the government’s payment of KBR’s reimbursement claims on Clause H-16

(requiring the military to provide force protection to contractor employees), Clause H-21 (giving

the theater commander discretion to determine whether contractors can carry government-

furnished weapons for self-defense), Clause H-13 (allegedly incorporating the CENTCOM

General Orders prohibiting the private possession of firearms), Modification 12 (requiring

contractor personnel seeking to carry weapons to make the request to the combatant

commander), or CPA Order 3 and Memorandum 17 (requiring contractors to obtain a license

from the Iraqi Ministry of Interior). D.’s Mot. 31–35. Because the complaint alleges “at best . . .

5
  For the classic illustration of this concept, see Gorris v. Scott, 9 L.R. Ex. 125 (1874), in which the English court
denied recovery to owners of sheep swept overboard in a storm because the purpose of the statute requiring pens on
the ship was to prevent disease, not to protect against drowning. See also Abrahams v. Young & Rubicam Inc., 79
F.3d 234, 237 (2d Cir. 1996) (“In a ‘suit on a statute’—that is, a suit in which the statute itself grants the recovery,
creates the jurisdiction, or permits special damages—the plaintiff must show both that he is within the class the
statute sought to protect and that the harm done was one that the statute was meant to prevent.” (citing Gorris)).

                                                           18
that KBR or its subcontractors may have violated technical regulations related to the use of

weapons in Iraq,” KBR argues that the government fails to show that it certified compliance with

any condition of the contract that was a “prerequisite” for payment and thus cannot state an FCA

violation. Id. at 34. The government disagrees, arguing that the contractual and regulatory

provisions listed above are in fact prerequisites for payment under LOGCAP III. U.S. Opp’n 23.

         What exactly constitutes a sufficient “prerequisite” to establish an implied false

certification claim is a question that has, until recently, remained somewhat uncertain in the D.C.

Circuit. At the time the parties submitted their motions, the controlling circuit precedent

appeared to be Siewick, which provided that “a false certification of compliance with a statute or

regulation cannot serve as the basis for [an FCA violation] unless payment is conditioned on that

certification.” Siewick, 214 F.3d at 1376 (emphasis added). Siewick left open the question of

whether this “conditioning” had to be explicit—in other words, whether an FCA plaintiff could

recover only if the contract or regulation stated directly that, “payment is contingent upon

compliance this provision.” The Second Circuit answered in the affirmative, holding that

“implied false certification is appropriately applied only when the underlying statute or

regulation upon which the plaintiff relies expressly states the provider must comply in order to

be paid.” Mikes, 274 F.3d at 700 (emphasis added); see also United States ex rel. Kirk v.

Schindler Elevator Corp., 601 F.3d 94, 114 (2d Cir. 2010) (“An implied false certification takes

place where a statute expressly conditions payment on compliance with a given statute or

regulation, and the contractor, while failing to comply with the statute or regulation (and while

knowing that compliance is required), submits a claim for payment.” (second emphasis added)).6

6
  The use of the term “express” may be somewhat confusing given that FCA doctrine also includes the “express
false certification claims” discussed earlier. That concept, which involves the submission of claims that expressly
testify to a false statement (recall the law student falsely affirming, “This is my own work”) is distinct from this one,

                                                           19
         Applying this rule, KBR’s argument would likely prevail. Nothing in the contractual or

regulatory provisions cited by the government expressly conditions payment of LOGCAP III

claims on compliance with those provisions. D.’s Mot. at 32–33 (analyzing provisions one-by-

one and showing that none condition payment on compliance). In December 2010, however, the

Court of Appeals for the D.C. Circuit outlined a different standard to govern implied certification

cases like this one. In SAIC II, the court considered “whether an FCA plaintiff may state a cause

of action against a federal contractor who fails to disclose the violation of a contractual condition

that is . . . not an express prerequisite to payment.” SAIC II, 626 F.3d at 1267–68. Finding itself

“untethered by precedent” on the question, a panel of Chief Judge Sentelle, Judge Tatel, and

Judge Griffith unanimously rejected the “express conditioning” requirement set out in the

Second Circuit cases. Id. at 1268. Judge Tatel explained for the panel that “nothing in the

statute’s language specifically requires such a rule, and we fear that adopting one would

foreclose FCA liability in situations that Congress intended to fall within the Act’s scope.” Id.

Instead, the court held that, “[t]he existence of express contractual language specifically linking

compliance to eligibility for payment may well constitute dispositive evidence of materiality, but

it is not . . . a necessary condition. The plaintiff may establish materiality in other ways, such as

through testimony demonstrating that both parties to the contract understood that payment was

conditional on compliance with the requirement at issue.” Id. at 1269.

         The holding in SAIC II controls this case.7 Rather than having to show that KBR

violated provisions of the LOGCAP III contract that expressly conditioned payment on

which requires a contract to expressly condition payment on compliance with a condition in order for an FCA
plaintiff to raise an implied false certification claim.
7
  While the motion to dismiss, opposition, and reply were filed before the decision in SAIC II, the parties have had
nearly nine months to supplement their filings with analysis of the case. Neither has done so (although they did
reference the case in filings related to the government’s motion for partial summary judgment). More importantly,
after careful study of SAIC II and the facts of this case, the Court has concluded that the government has

                                                         20
compliance, the government need only show that “the contractor withheld information about its

noncompliance with material contractual requirements.” Id. This is still a difficult bar to clear.

The Court of Appeals warned that “the implied certification theory is prone to abuse by the

government and [other plaintiffs] who, seeking to take advantage of the FCA’s generous

remedial scheme, may attempt to turn the violation of minor contractual provisions into an FCA

action.” Id. at 1270. That is exactly the objection that KBR raises in this case. As the court

explained, “this very real concern can be effectively addressed through strict enforcement of the

[FCA]’s materiality and scienter requirements.” Id. The Court addresses each of those

requirements in turn.

                                   i.       Materiality

        The materiality prong requires the government to “prove by a preponderance of the

evidence that compliance with the legal requirement in question is material to the government's

decision to pay.” Id. at 1271. As the Tenth Circuit explained in a case employing “the same

materiality approach” as SAIC II, id., this inquiry requires “analysis focus[ing] on the underlying

contracts, statutes, or regulations themselves to ascertain whether they make compliance a

prerequisite to the government’s payment.” United States ex rel. Lemmon v. Envirocare of Utah,

Inc., 614 F.3d 1163, 1168–69 (10th Cir. 2010) (quoting United States ex rel. Conner v. Salina

Reg’l Health Cent., Inc., 543 F.3d 1211, 1218 (10th Cir. 2008)). Put another way, the

government must show that had it “known of the falsity [of the claims submitted], it may not

have paid.” Id. at 1169.

        The government makes this exact argument when it states that “[o]bviously this

information [about KBR’s potential violation of the contract provisions related to private

demonstrated enough to survive the motion to dismiss for the reasons outlined in this portion of the opinion. The
most appropriate step, then, is to deny the motion and move forward with the case.

                                                        21
security] was critical to the Army’s decision to pay because the contract did not permit payment

for unallowable costs.” U.S. Opp’n 23. The internal e-mails quoted in the complaint, Compl. ¶¶

28–31, reinforce this point by suggesting that KBR recognized that the provisions were material

when its employees wrote that the “cost [of private security] could be considered unallowable.”

Id. ¶ 28. This is precisely the kind of “testimony demonstrating that both parties to the contract

understood that payment was conditional on compliance with the requirement at issue” that SAIC

II allows an FCA plaintiff to present. SAIC II, 626 F.3d at 1269.

       Of course, KBR can continue to press its contentions that (1) the LOGCAP III contract

does not prohibit reimbursement for private security contractor expenses, and (2) even if it does,

none of the provisions violated by KBR are material to payment for its claims. If KBR can

prevail on either of these lines of argument, it can likely avoid FCA liability. Id. at 1271

(“Payment requests by a contractor who has violated minor contractual provisions that are

merely ancillary to the parties’ bargain are neither false nor fraudulent.”) At this stage of the

proceedings, however, the government has stated enough to draw the inference that the

provisions in question are material to the government’s decision to pay. “So long as the

pleadings suggest a plausible scenario to show that the pleader is entitled to relief, a court may

not dismiss.” Atherton, 567 F.3d at 681.

                               ii.     Scienter

       Similar analysis applies to the scienter requirement. Under SAIC II, a successful FCA

plaintiff must “prove that the defendant knows (1) that it violated a contractual obligation, and

(2) that its compliance with that obligation was material to the government’s decision to pay.”

SAIC II, 626 F.3d at 1271. The e-mails cited in the complaint suggest that KBR knew both that

private security costs “could be considered unallowable” and could “effect a material change in

                                                  22
[the] contract.” Compl. ¶¶ 28, 30. The allegation that KBR tried to modify the contract to allow

for the use of private armed security but continued to submit claims involving private security

even after negotiations to amend the contract failed further supports the government’s scienter

argument. Compl. ¶ 32.

       KBR counters that the scienter requirement cannot be met if the Court finds that KBR

and the government had a reasonable disagreement about how to interpret the contract. D.’s

Mot. at 23. This argument is persuasive. See Siewick, 214 F.3d at 1378; Hagood v. Sonoma

County Water Agency, 81 F.3d 1465, 1477 (9th Cir. 1996) (holding that “a disputed legal issue

. . . is not enough to support a reasonable inference that the allocation was false within the

meaning of the False Claims Act”). Given the allegations the government has put forward,

however, further factual material is required before the Court can determine whether the claims

at issue here involved only a contractual dispute.

       KBR also challenges the government’s scienter argument on the grounds that the Army

has paid claims in the past even when it knew that they contained private security expenses.

KBR’s ASBCA Compl. ¶ 1. If this were true, it would cut strongly in KBR’s favor. While

“government knowledge of a contractor’s wrongdoing is no longer an automatic defense to an

FCA action . . . 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.” Shaw v. AAA Eng’g & Drafting, Inc.,

213 F.3d 519, 534 (10th Cir. 2000). The government, however, alleges the exact opposite

position by contending that it rejected the claims as soon as it recognized that they contained

unallowable private security costs. U.S. Opp’n 23. Faced with competing factual claims, neither

inherently more credible than the other, the Court must draw the inferences in the non-moving

                                                 23
party’s favor. Here, that requires denying KBR’s motion to dismiss. See Atherton, 567 F.3d at

681.

       B.      Breach of Contract Claim

       Having denied KBR’s motion to dismiss the FCA claim, on which the parties spent the

vast majority of their arguments, the Court can address the other claims relatively simply. KBR

moves to dismiss the government’s breach of contract claim based on lack of jurisdiction under

Federal Rule of Civil Procedure 12(b)(1). Its only argument, however, is based on the premise

that the FCA claim would also be dismissed, in which case the breach claim would have to be

adjudicated before the ASBCA in accordance with the Contract Disputes Act, 41 U.S.C. §§ 601,

et seq. D.’s Mot. 52. Because the FCA claim was not dismissed, however, the breach claim must

remain in this Court as well. As KBR acknowledges, the CDA jurisdictional limits contain an

explicit exception for “any claim involving fraud.” Id. § 605(a). While there might have been

some question about the reach of the phrase “involving fraud” if the FCA claim had been

dismissed, see U.S. Opp’n 40–41, there can be no doubt that a pending False Claims Act claim

“involves” fraud. KBR’s motion to dismiss the breach of contract claim for lack of jurisdiction

is therefore denied.

       C.      Unjust Enrichment and Payment by Mistake Claims

       Finally, KBR moves to dismiss the government’s unjust enrichment and payment by

mistake claims because quasi-contractual remedies like these are inapposite when an express

contract governs interaction between two parties. D.’s Mot. 50–51. This is correct. As the D.C.

Circuit has explained, “there can be no claim for unjust enrichment when an express contract

exists between the parties.” Albrecht v. Comm. on Employee Benefits of the Fed. Reserve

Employee Benefits Sys., 357 F.3d 62, 69 (D.C. Cir. 2004). The same goes for a payment by

                                               24
mistake claim, another quasi-contractual remedy, because the existence of a valid contract

between the parties negates the need for the court to imply a contract by law. See Bloomgarden

v. Coyer, 479 F.2d 201, 210 (D.C. Cir. 1973) (“There is, of course, no need to resort to quasi-

contract when the evidence sustains the existence of a true contract, either express or implied in

fact.”); United States v. Sci. Applications Int’l Corp. (SAIC I), 555 F. Supp. 2d 40, 59–60

(D.D.C. 2008) (applying this principle to both unjust enrichment and payment by mistake

claims).

       The government does not dispute this “foundational principle of contract law,” Sununu v.

Philippine Airlines, Inc. (Sununu II), No. 98-1192 (RCL), 2011 WL 2438356, at *12 (D.D.C.

June 20, 2011), but instead emphasizes that the Federal Rules allow for pleading in the

alternative. U.S. Opp’n 38–40. As was the case in SAIC I, “[t]he government is correct, but its

point is unavailing.” SAIC I, 555 F. Supp. 2d at 59. The liberal pleading approach of the Federal

Rules allows a plaintiff to plead alternative claims, but those claims must have some basis on

which relief could be granted or they will be vulnerable to a motion to dismiss under Rule

12(b)(6). Here, the unjust enrichment and payment by mistake claims must be supported by, at

the very least, an allegation that there is no valid contract. But the government makes no such

claim. Indeed, throughout the extensive briefing each party has prepared in this case, there is no

suggestion that the LOGCAP III contract is invalid or inapplicable to the dispute at hand. The

Court therefore finds that an express contract is present, and the quasi-contractual claims must be

dismissed. Cf. United States ex rel. Purcell v. MWI Corp., 254 F. Supp. 2d 69, 79 (D.D.C.

2003), (explaining that “courts . . . have granted motions to dismiss an unjust-enrichment claim

in light of the existence of an express contract”); SAIC I, 555 F. Supp. 2d at 59 (applying the

same reasoning to a payment by mistake claim).

                                                25
V.     CONCLUSION

       For the reasons outlined above, KBR’s motion to dismiss is denied with respect to the

False Claims Act and breach of contract counts and granted with respect to the unjust enrichment

and payment by mistake counts. The case will now proceed to discovery, where the parties will

seek to clarify which provisions of the LOGCAP III contract, if any, prohibit expenses for

private security contractors in Iraq; the materiality of those provisions to payment for KBR’s

claims; and the extent of KBR’s knowledge about the legality of the claims it submitted. As

noted at the outset, the FCA was enacted against the backdrop of the “sordid picture” of Civil

War contractors defrauding the government. McNinch, 356 U.S. at 599. The law was not

intended and should not be invoked to punish companies for mere breaches of contract or good

faith misunderstandings. Yet there can be no excuse for a contractor that knowingly submits

false claims or leads to the government being “generally robbed in purchasing the necessities of

war.” Id.

       A separate Order consistent with these findings shall issue this date.

       Signed by Royce C. Lamberth, Chief Judge, on August 3, 2011.

                                                26