Court Opinion

ID: 2967004
Source: CourtListenerOpinion
Date Created: 2015-09-22 01:44:47.234906+00
Date Added: 2024-06-11T11:43:12.068011
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

EDWIN P. HARRISON,
Plaintiff-Appellant,

and

UNITED STATES OF AMERICA,
Party in Interest,
                                                                        No. 98-1037

v.

WESTINGHOUSE SAVANNAH RIVER
COMPANY,
Defendant-Appellee.

Appeal from the United States District Court
for the District of South Carolina, at Aiken.
Charles E. Simons Jr., Senior District Judge.
(Ca-94-2332-1-6)

Argued: October 28, 1998

Decided: May 17, 1999

Before MURNAGHAN and WILLIAMS, Circuit Judges, and
BLAKE, United States District Judge for the
District of Maryland, sitting by designation.

_________________________________________________________________

Affirmed in part, reversed in part, and remanded for proceedings con-
sistent with this disposition by published opinion. Judge Murnaghan
wrote the opinion, in which Judge Williams and Judge Blake joined.

_________________________________________________________________

COUNSEL

ARGUED: Richard E. Miley, North Augusta, South Carolina, for
Appellant. Lawrence Graeme Bell, III, CROWELL & MORING,
L.L.P., Washington, D.C., for Appellee. ON BRIEF: Christopher M.
Farris, CROWELL & MORING, L.L.P., Washington, D.C., for
Appellee.

_________________________________________________________________

OPINION

MURNAGHAN, Circuit Judge:

Relator Harrison ("Harrison" or "Appellant") brought a claim under
the False Claims Act, 31 U.S.C.A. §§ 3729-3733 (West Supp. 1998),
against Westinghouse Savannah River Corp. ("WSRC") alleging that
WSRC made false and fraudulent statements to the government in
connection with claims for payment to a subcontractor hired by
WSRC for a Department of Energy ("DOE") contract. Harrison
alleged, inter alia, that WSRC misrepresented the cost and duration
of the proposed subcontract in order to get DOE approval for the sub-
contract, and that WSRC falsely certified that there was no conflict
of interest with the subcontractor. The district court granted WSRC's
motion to dismiss under Federal Rule of Civil Procedure 12(b)(6),
finding that no false claim had been made, either because Harrison's
complaint amounted only to allegations of inefficiency, or because the
allegedly false statements were not made in connection with a "claim"
under the False Claims Act. We affirm in part and reverse in part.

I.

A.

Since 1989, WSRC has been the management and operations con-
tractor for the United States Department of Energy at the Savannah
River Site ("SRS"), a nuclear facility near Aiken, South Carolina.
WSRC's contract with the government provides that WSRC is enti-
tled to receive the allowable costs it incurs on the project in addition
to an award fee.

As a part of its contractual responsibilities, and pursuant to policy
and regulations, when WSRC decides to subcontract certain tasks
necessary for the operation and management of the SRS, WSRC pro-

                     2
vides the technical requirements to the DOE for review before releas-
ing a solicitation or request for proposals ("RFP") for that
subcontracting action. See Department of Energy Acquisition Regula-
tion ("DEAR") § 970.7108, 48 C.F.R.§ 970.7108 (1988).1 Once the
technical review is complete, WSRC releases an RFP for the work
and selects the subcontractor in a manner consistent with the provi-
sions of the RFP. WSRC then sends a "Procurement Under Review"
or "PUR" package to the DOE, which includes a copy of the technical
requirements, the solicitation, the Justification for Award, the
subcontractor-awardee's proposal, and the proposed subcontract. The
DOE reviews the information in the package and decides whether it
will approve the request to subcontract the work out. If the DOE
approves, WSRC enters into a subcontract with the selected subcon-
tractor.

Count 1:2 False-Statements About Need for Subcontractor and Price
of Subcontract

In July 1992, WSRC identified a need for training related to in-tank
precipitation process operations, known as "ITP Training" (hereinaf-
ter "ITP Training Project"). As part of its standard practice, WSRC
included in the technical package that was sent to the DOE for review
a "Make or Buy Analysis" ("MBA"), which analyzed the cost-
effectiveness of buying the ITP Training services as opposed to pro-
viding those services in-house. (Amended Complaint at ¶ 24.) The
MBA stated that while WSRC had the capacity to provide the service,
WSRC did not have personnel available. The MBA stated further that
since the service was of a one-time variety and of a short-term nature
(1.5 years), it was not practical for WSRC to hire full-time staff to
meet the need.
_________________________________________________________________

1 All references to the applicable procurement regulations are to those
that were in effect at the time that the WSRC-DOE contract became
effective.

2 The "Counts" detailed herein do not correspond exactly to the counts
as enumerated in Harrison's amended complaint; they are distilled. For
the district court's convenience reference is made to the corresponding
paragraphs in Harrison's First Amended Complaint.

                    3
WSRC's MBA also represented to the government that in the
aggregate, WSRC estimated that the cost for WSRC to provide the
ITP Training would be $1,579,500, while the cost for a subcontractor
to perform the work would be substantially more-- $2,750,000. The
DOE reviewed and signed off on the technical package, including the
MBA. After receiving the DOE's approval, WSRC released a request
for proposals for the ITP Training Project and ultimately subcon-
tracted the project to General Physics Corporation (hereinafter "GPC
subcontract").

Harrison alleges that WSRC made the following misrepresenta-
tions to the government as part of its "plan and scheme" to obtain
DOE approval for WSRC's use of a subcontractor rather than use of
WSRC's own personnel to develop and implement the ITP Training
Project:

         a. That the project was "short term" such that subcontract
         personnel would be needed for no more than 1.5 years;
         WSRC knew that developing and implementing the ITP
         Training Project would take at least several years,
         (Amended Complaint ¶ 24(a));

         b. That providing the ITP Training was not "a continuing
         need" but rather was a "one time variety" project; WSRC
         knew that the ITP Training Project would be a continuous
         on-going need for many years, (Amended Complaint
         ¶ 24(b));

         c. That there was no need to hire permanent staff to fulfill
         the ITP Training requirement; WSRC knew that the ITP
         Training Project would require qualified trainers for a
         decade or more, (Amended Complaint ¶ 24(c);

         d. That "Other Costs" for such things as computers, etc.,
         would be zero; WSRC knew that the subcontractor would
         need to purchase computers to perform the subcontract
         work, (Amended Complaint ¶ 24(e)); (See also Amended
         Complaint ¶ 33); and

                   4
          e. That the ITP Training services could be obtained on a
          firm-fixed price basis at a "total cost" of $2,750,000; WSRC
          intended to subcontract the ITP Training Project on a cost-
          plus-fixed-fee basis and knew that the training would cost
          substantially more than $2,750,000, (Amended Complaint
          ¶¶ 24(d), 22(a)).

Count 2: False Certification of No Conflict of Interest

General Physics Corporation ("GPC"), a subcontractor company
doing business with WSRC at SRS, employed Relator Harrison as
one of its vice-presidents. He worked for GPC in Aiken, directing
some of GPC's subcontract work with WSRC at SRS. On August 12,
1992, GPC received from WSRC a RFP for the ITP Training Project.

During the next several weeks, Harrison alleges that he became
aware that GPC personnel developing GPC's proposal were request-
ing and improperly receiving insider information from WSRC's Sub-
contract Technical Representative ("STR"). Harrison allegedly found
that WSRC's STR, who would later participate in the technical evalu-
ation of the bids on the ITP Training Project, was supplying insider
information not available to other bidders. He also alleges that he
learned that WSRC's STR had permitted GPC employees to partici-
pate in preparation of portions of the RFP.3 (Amended Complaint
¶ 28.) WSRC awarded the ITP Training subcontract to GPC.

(a) In its proposal, GPC represented that it had no conflicts of inter-
est related to the ITP Training subcontract. This certification was sub-
mitted to the DOE by WSRC as part of the "Justification for Award"
in the PUR package. Harrison alleges that (1) the contacts between
WSRC and GPC violated DEAR conflict of interest regulations, (2)
WSRC was obliged to comply with these regulations and to certify
_________________________________________________________________
3 Harrison alleges that he confronted GPC's President and Chief Execu-
tive Officer and its Senior Vice President in September, 1992 concerning
these allegedly illegal activities. As a result, Harrison alleges that GPC
removed Harrison as an officer, banned him from GPC's offices, and ter-
minated his employment contract. Harrison asserts that he prevailed in
a civil action against GPC and several of its officers arising from this dis-
charge.

                    5
such compliance, and (3) WSRC falsely certified to the DOE that it
had complied with these regulations. Harrison asserts that this false
certification caused all claims for DOE reimbursement on the GPC
subcontract to be "false claims."4

(b) Harrison also alleges that WSRC had an affirmative obligation
to report undisclosed conflicts of interest with its subcontractors when
a subcontract was significantly increased. WSRC's failure to alert the
DOE to these conflicts, even after Harrison had given notice to
WSRC about the conflicts, allegedly makes all claims submitted
under several expansions of the GPC subcontract fraudulent.
(Amended Complaint ¶¶ 27 (first sentence), 36.)

Count 3: Misrepresentation of Subcontract Terms

(a) Harrison alleges that after the GPC subcontract was approved,
WSRC misrepresented the scope of work for the ITP Training Proj-
ect. According to Harrison, the subcontract did not set forth any
requirement for subcontractor personnel to perform procedure devel-
opment. Less than three months into the ITP Training subcontract,
however, WSRC knowingly misrepresented to the DOE that the exist-
ing ITP Training subcontract in fact provided for procedure revision
and upgrade not to exceed 5% of the total scope of work. Based upon
WSRC's misrepresentation, the DOE approved WSRC's request for
adding work to the subcontract on a "sole-source" basis at a cost of
$880,000. (Exhibit C to Amended Complaint; Amended Complaint
¶ 22(b) and (c).)

(b) Separately, Harrison alleges that before this $880,000 proce-
dure development cost was approved, WSRC had directed GPC to
perform procedure development activities. Since at that time, these
activities were allegedly not approved costs under the contract, Harri-
son alleges that WSRC's payment requests incorporating these activi-
ties were fraudulent. (Amended Complaint ¶ 34.)
_________________________________________________________________
4 Although Harrison asserts five separate variations on this theme, (see
Amended Complaint ¶¶ 25(g), 26, 28, 29, 30), these paragraphs of the
complaint essentially boil down to one claim dealing with the initial con-
flict of interest certification, and will be treated as such in this opinion.

                    6
Count 4: False Signature

Harrison alleges that a purchase requisition form submitted to the
DOE contained "fraudulent and/or unauthorized signatures" and
WSRC knew that at least one of these was fraudulent. (Amended
Complaint ¶ 23.)

Count 5: Breach of Fiduciary Duty

Harrison alleges that WSRC held itself out as being experienced
and qualified to maintain a nuclear facility and had contractual and
fiduciary duties to act in the DOE's best interest. WSRC supposedly
violated these duties by engaging "in a scheme and plan to increase
the cost of performance and its fees under its contract, acting with
actual knowledge or with reckless disregard for the truth or with
deliberate ignorance." (Amended Complaint ¶ 25(a)-(g).)

Count 6: Knowing Misrepresentation of Costs of Subcontract

In addition to the allegations under Count 1, Harrison asserts that
WSRC knowingly under-estimated the cost of the GPC subcontract
by allowing GPC to understate its overhead costs for GPC's ITP
Training Project bid. The under-estimated costs were submitted to the
DOE as part of the PUR package. This was done in an effort to get
the DOE to approve subcontracting. (Amended Complaint ¶ 31.)

Count 7: Increased Labor Costs

Harrison alleges that GPC changed the personnel on the GPC sub-
contract bid in order to raise the labor costs in that bid. GPC then
assigned personnel with lower salaries than those on the bid to per-
form under the GPC subcontract. (Amended Complaint¶ 32.)

Count 8: Over-Charging Via "Other Direct Costs" Account

Harrison alleges that WSRC directed GPC and other subcontractors
to purchase supplies and charge them to "Other Direct Costs," when
WSRC "had a duty to acquire them through its own procurement sys-
tem at lower costs." (Amended Complaint ¶ 33.) By this practice

                    7
WSRC was allegedly able to circumvent DOE approval for purchas-
ing certain items and to inflate its operating costs base to the DOE.

Count 9: Lack of Management Controls

Harrison alleges that WSRC by contract and regulation was
required to maintain effective systems of management to safeguard
against theft, fraud, and waste and did not do so. (Amended Com-
plaint ¶ 38.)

Count 10: Conspiracy

Though not clearly pled in his Amended Complaint, Harrison
asserts in his brief that once the ITP Training subcontract was
awarded, WSRC and GPC then engaged in a conspiracy to routinely
"sole source" modifications of the ITP Training Project, increasing
the subcontract cost from $2,461,161 to more than $9.3 million with-
out allowing any competition for the provision of the services repre-
sented by the additional $6.9 million. (Appellant's Br. at 10.) (Cf. also
Amended Complaint ¶¶ 27, 37.)

B.

The district court granted WSRC's motion to dismiss under Rule
12(b)(6). The district court had two bases for its order. First, the dis-
trict court found that at best Harrison's complaints amounted to alle-
gations that WSRC handled the DOE contract with waste and
inefficiency and the FCA does not reach such claims. The district
court also found that, even if Harrison had proved false statements
and fraud, as a matter of law there was no false claim under the False
Claims Act because the false statements and fraud"were not made in
connection with the presentation of a claim." (J.A. at 56.) The district
court reasoned that the False Claims Act does not reach false state-
ments in submissions to the Government to gain approval for subcon-
tracting decisions. In the district court's view, the False Claims Act
reaches only situations in which a "claim [i.e., the demand for pay-
ment from the government] . . . is itself false or fraudulent." (J.A. at
57.)

                     8
II.

This Court reviews de novo a district court's dismissal for failure
to state a claim upon which relief may be granted under Federal Rule
of Civil Procedure 12(b)(6). Cavallo v. Star Enterprise, 100 F.3d
1150, 1153 (4th Cir. 1996). In its review of Rule 12(b)(6) dismissals,
this Court must accept as true all of the Appellant's allegations and
must construe factual allegations in the light most favorable to the
plaintiff. Mylan Laboratories, Inc. v. Matkari , 7 F.3d 1130, 1134 (4th
Cir. 1993).

A. Pleading Fraud with Particularity5

Since Appellant in this case alleges fraud, his claim is subject to
Federal Rule of Civil Procedure 9(b), which requires that claimants
plead fraud with particularity.6 According to two noted scholars, the
"circumstances" required to be pled with particularity under Rule 9(b)
are "the time, place, and contents of the false representations, as well
as the identity of the person making the misrepresentation and what
he obtained thereby." 5 Charles Alan Wright and Arthur R. Miller,
Federal Practice and Procedure: Civil § 1297, at 590 (2d ed. 1990).
See also Lasercomb America, Inc. v. Reynolds, 911 F.2d 970, 980
(4th Cir. 1990); In re Cryomedical Sciences, Inc. Securities
Litigation, 884 F. Supp. 1001, 1012-13 (D. Md. 1995); In re Medim-
mune, Inc. Securities Litigation, 873 F. Supp. 953, 964-69 (D. Md.
1995). Mere allegations of "fraud by hindsight" will not satisfy the
requirements of Rule 9(b). Hillson Partners Ltd. Partnership v.
Adage, Inc., 42 F.3d 204, 209 (4th Cir. 1994). The second sentence
_________________________________________________________________
5 Although the district court did not dismiss Harrison's complaint under
Rule 9(b), lack of compliance with Rule 9(b)'s pleading requirements is
treated as a failure to state a claim under Rule 12(b)(6). See United States
ex rel. Thompson v. Columbia/HCA Healthcare Corp. , 125 F.3d 899, 901
(5th Cir. 1997). Also, both parties presented arguments under Rule 9(b)
to the court below, and in their briefs here. So it is appropriate for us to
address the validity of Harrison's pleadings under Rule 9(b).
6 Fed. R. Civ. P. 9(b) states:"In all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with particu-
larity. Malice, intent, knowledge, and other condition of mind of a person
may be averred generally."

                    9
of Rule 9(b) allows conclusory allegations of defendant's knowledge
as to the true facts and of defendant's intent to deceive. See 5 Wright
and Miller § 1297, at 612.

Rule 9(b) has four purposes:

          First, the rule ensures that the defendant has sufficient infor-
          mation to formulate a defense by putting it on notice of the
          conduct complained of. ... Second, Rule 9(b) exists to pro-
          tect defendants from frivolous suits. A third reason for the
          rule is to eliminate fraud actions in which all the facts are
          learned after discovery. Finally, Rule 9(b) protects defen-
          dants from harm to their goodwill and reputation.

United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v.
Blue Cross Blue Shield of Georgia, Inc., 755 F. Supp. 1055, 1056-57
(S.D. Ga. 1990). 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 pre-
pare a defense at trial, and (2) that plaintiff has substantial pre-
discovery evidence of those facts.

B. The False Claims Act

Originally passed during the Civil War in response to overcharges
and other abuses by defense contractors, Congress intended that the
False Claims Act, 31 U.S.C.A. §§ 3729-3733 (West Supp. 1998), and
its qui tam action would help the government uncover fraud and
abuse by unleashing a "posse of ad hoc deputies to uncover and pros-
ecute frauds against the government." United States ex rel. Milam v.
Univ. of Tex. M.D. Anderson Cancer Ctr., 961 F.2d 46, 49 (4th Cir.
1992). The first substantial amendments to the False Claims Act came
in 1986. See S. Rep. No. 99-345, at 2 (1986), reprinted in 1986
U.S.C.C.A.N. 5266. In the 1986 amendments, Congress sought to
broaden the availability of the False Claims Act to"enhance the Gov-
ernment's ability to recover losses sustained as a result of fraud
against the Government." Id. Congress was acting, in part, in response
to judicial decisions taking a restrictive approach to the False Claims
Act. See id. at 4, reprinted in 1986 U.S.C.C.A.N. at 5269.

                    10
The False Claims Act allows private litigants to bring actions on
behalf of the government against anyone who, inter alia:

           (1) knowingly presents, or causes to be presented, [to the
          government] a false or fraudulent claim for payment or
          approval;

           (2) 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; or

           (3) conspires to defraud the Government by getting a
          false or fraudulent claim allowed or paid.

31 U.S.C.A. § 3729(a); 31 U.S.C.A. § 3730(b).

The term "knowingly" has a special meaning within the context of
the False Claims Act:

          "knowing" and "knowingly" mean that a person, with
          respect to information--

          (1) has actual knowledge of the information;

           (2) acts in deliberate ignorance of the truth or falsity of
          the information; or

           (3) acts in reckless disregard of the truth or falsity of the
          information,

          and no proof of specific intent to defraud is required.

31 U.S.C.A. § 3729(b).

Liability under each of the provisions of the False Claims Act is
subject to the further, judicially-imposed, requirement that the false
statement or claim be material.7 Materiality depends on "whether the
_________________________________________________________________
7 Some courts have asserted that there is an additional element that the
United States must have suffered some damages as a result of the false

                     11
false statement has a natural tendency to influence agency action or
is capable of influencing agency action." United States ex rel. Berge
v. Bd. of Trustees of Univ. of Ala., 104 F.3d 1453, 1459 (4th Cir.),
cert. denied, ___ U.S. ___, 118 S. Ct. 301 (1997) (quoting United
States v. Norris, 749 F.2d 1116, 1122 (4th Cir. 1984)). Materiality is
a mixed question of law and fact. See id. at 1460.

The Supreme Court has cautioned that the False Claims Act was
not designed to punish every type of fraud committed upon the gov-
ernment. See United States v. McNinch, 356 U.S. 595, 599 (1958). In
order for a false statement to be actionable under the False Claims Act
it must constitute a "false or fraudulent claim." "[T]he statute attaches
liability, not to the underlying fraudulent activity or to the govern-
ment's wrongful payment, but to the `claim for payment.'" United
States v. Rivera, 55 F.3d 703, 709 (1st Cir. 1995). Therefore, a central
question in False Claims Act cases is whether the defendant ever
presented a "false or fraudulent claim" to the government.

Interpreting the last word of the phrase is fairly easy. The False
Claims Act states that a claim "includes any request or demand ... for
money or property" where the government provides any portion of the
money or property requested. 31 U.S.C.A. § 3729(c). In other words,
the False Claims Act at least requires the presence of a claim -- a call
upon the government fisc -- for liability to attach.

Taking the phrase "false or fraudulent claim" in its entirety, though,
is more complicated, because the phrase has become a term of art.
_________________________________________________________________
or fraudulent claim. See, e.g., Blusal Meats, Inc. v. United States, 638
F. Supp. 824, 827 (S.D.N.Y. 1986), aff'd, 817 F.2d 1007 (2nd Cir. 1987).
In fact, there is no requirement that the government have suffered dam-
ages as a result of the fraud. See United States ex rel. Joslin v. Commu-
nity Home Health of Maryland, Inc., 984 F. Supp. 374, 383 (D. Md.
1997) (citing United States ex rel. Pogue v. American Healthcorp., Inc.,
914 F. Supp. 1507, 1508-09 (M.D. Tenn. 1996)); S. Rep. No. 345, 99th
Cong., 2d Sess. 8, reprinted in 1986 U.S.C.C.A.N. at 5273. Cf. United
States ex rel. Marcus v. Hess, 317 U.S. 537 (1943) (affirming, without
addressing, district court's determination that no damages need be
incurred). But cf. United States ex rel. Berge v. Bd. of Trustees of Univ.
of Ala., 104 F.3d 1453, 1458 (4th Cir.), cert. denied, ___ U.S. ___, 118
S. Ct. 301 (1997) (government must suffer an injury in fact for there to
be standing).

                    12
The district court would only find a false claim where a demand for
payment is itself false or fraudulent (presumably for services not per-
formed or for an incorrect amount). The district court flatly rejected
the possibility that False Claims Act liability could rest on false state-
ments submitted to the government to gain approval for a subcontract.
The district court relied on two cases for this approach, United States
v. McNinch, 356 U.S. 595 (1958), and United States ex rel. Thompson
v. Columbia/HCA Healthcare Corp., 938 F. Supp. 399 (S.D. Tex.
1996) (additional history below).

The district court's narrow interpretation of the phrase "false or
fraudulent claim" is incorrect. First, there are problems with the cases
relied upon by the district court. McNinch was decided under a crimi-
nal version of the False Claims Act and the Court explicitly relied on
a rule of lenity-type analysis in reaching its interpretation of the stat-
ute. McNinch, 356 U.S. at 598. The current statute is not criminal, and
so a rule of lenity approach is no longer appropriate. Also, McNinch
was a very narrow holding reflecting the facts of that case. No request
for payment from the government had yet been made when McNinch
was decided, and the Court left open the question whether the False
Claims Act would apply if and when a claim on the government fisc
was made. Id. at 599 n.6. Subsequent cases confirm that the act which
did not violate the False Claims Act in the factual context of McNinch
does lead to False Claims Act liability when the government fisc is
finally called upon. See United States v. Rivera , 55 F.3d at 707, and
cases cited therein. The second case relied upon by the district court,
Thompson, had already been vacated when the district court relied
upon it. See United States ex rel. Thompson v. Columbia/HCA
Healthcare Corp., 125 F.3d 899 (5th Cir. 1997), aff'g in part and
vacating in part 938 F. Supp. 399 (S.D. Tex. 1996).

Second, and more importantly, the district court's approach is in
contradiction to the legislative history of the statute and to many
courts, including the Supreme Court, that have addressed the issue.

According to Congress, after the 1986 amendments the False
Claims Act should be broadly construed:

          each and every claim submitted under a contract, loan guar-
          antee, or other agreement which was originally obtained by

                     13
          means of false statements or other corrupt or fraudulent con-
          duct, or in violation of any statute or applicable regulation,
          constitutes a false claim.

S. Rep. No. 99-345, at 9, reprinted in 1986 U.S.C.C.A.N. at 5274
(emphases added). The courts have implemented the principles
embodied in the above-quoted passage in a variety of ways.

1. False Certification Cases

A number of courts in a variety of contexts have found violations
of the False Claims Act when a government contract or program
required compliance with certain conditions as a prerequisite to a gov-
ernment benefit, payment, or program; the defendant failed to comply
with those conditions; and the defendant falsely certified that it had
complied with the conditions in order to induce the government bene-
fit. Courts have allowed False Claims Act claims to go forward based
on false certifications with respect to compliance with environmental
standards, see United States ex rel. Fallon v. Accudyne Corp., 880
F. Supp. 636, 638 (W.D. Wis. 1995); false certifications of compli-
ance with the non-discrimination requirements of the Fair Housing
Act and with an affirmative action plan, see United States v. Incorpo-
rated Village of Island Park, 888 F. Supp. 419, 434-36, 440-41
(E.D.N.Y. 1995); false certifications of compliance with the Medicare
anti-kickback and anti-self-referral statutes, see United States ex rel.
Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902;
United States ex rel. Pogue v. American Healthcorp., Inc., 914
F. Supp. 1507, 1509 & 1513 (M.D. Tenn. 1996); and false certifica-
tions of compliance with rules for continuing adherence to the
requirements of a Small Business Administration minority contracting
program, see Ab-Tech Construction, Inc. v. United States, 31 Fed. Cl.
429 (1994), aff'd, 57 F.3d 1084 (Fed. Cir. 1995).8 The courts in these
_________________________________________________________________
8 These last two cases involved implied certifications rather than actual
certifications made by the defendants. That is, plaintiffs contended that
the submission of invoices and reimbursement forms constituted implied
certifications of compliance with the terms of the particular government
program. Ab-Tech, 31 Fed. Cl. at 433-434; Pogue, 914 F. Supp. at 1509.
At least one district court in this Circuit has expressed some reservations
about the concept of an implied certification. See United States ex rel.

                    14
cases will not find liability merely for non-compliance with a statute
or regulation. See, e.g., Thompson, 125 F.3d at 902. The Fifth Circuit
has emphasized that liability for a false certification will lie only if
compliance with the statutes or regulations was a prerequisite to gain-
ing a benefit, and the defendant affirmatively certified such compli-
ance: "where the government has conditioned payment of a claim
upon a claimant's certification of compliance with ... a statute or regu-
lation, a claimant submits a false or fraudulent claim when he or she
falsely certifies compliance with that statute or regulation."
Thompson, 125 F.3d at 902. Accord United States ex rel. Joslin v.
Community Home Health of Md., Inc., 984 F. Supp. 374, 383-84 (D.
Md. 1997).9

2. Fraud-in-the-Inducement Cases

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, hold-
ing, in part, that there can be no False Claims Act liability for an omis-
sion 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 the-
ory, 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 viola-
tion of Anti-Pinkerton Act).
10 The phrase "fraud-in-the-inducement" in the False Claims Act con-
text 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 con-
tracts which the defendants obtained via collusive bidding. Id. at 542.11
The Court found that each claim submitted under the contracts consti-
tuted a false or fraudulent claim:

          This fraud did not spend itself with the execution of the con-
          tract. 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 fraudu-
lent 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 abil-
ity to perform the contract, cf. United States ex rel. Schwedt v. Plan-
ning 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 genu-
ine 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" submit-
ted 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 con-
strued 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 dis-
tilled 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").

III.

Count 3: In Count 3(a), Harrison alleges that WSRC lied about the
scope of the GPC subcontract in order to get the DOE to approve a
sole-source extension of the subcontract for $880,000. In Count 3(b),

                     17
Harrison alleges that WSRC submitted claims for work that was
beyond the scope of the contract.

WSRC challenges these claims on several bases. First, WSRC
notes that the DOE was in possession of a copy of the GPC contract
when WSRC submitted the claims in Count 3(b) and the contract
extension proposal in Count 3(a) and was thus fully capable of agree-
ing or disagreeing with WSRC's interpretation of the contract terms.
WSRC also argues that these misstatements do not meet Berge's
materiality requirement.

A close reading of the materials relied upon by Harrison leads to
the conclusion that all of Count 3 must be dismissed. The DOE's
approval statement indicates that even if WSRC had lied, this was
immaterial to the DOE's sole-source extension. The DOE granted a
sole source extension of $880,000 for procedure development because
it was convinced that changes in the "expectations and regulatory
requirements" forced a "complete upgrade of the ITP procedure sys-
tem." (J.A. at 48.) The DOE did cite to the allegedly false inclusion
of 5% procedure development in the GPC subcontract when it
approved the $880,000 sole-source extension. (J.A. at 49). But its
approval was for much more than a 5% extension; the DOE was spe-
cifically altering the original scope of work to meet the changed cir-
cumstances. Whether the original GPC subcontract had contained a
provision for zero or 5% procedure development was simply immate-
rial to the DOE's decision.

As for Count 3(b), WSRC's argument is persuasive. The DOE was
aware of the terms of the contract -- it could have objected to the
inclusion of procedure development costs if it had believed that such
work was not authorized. Harrison does not allege that WSRC tried
to conceal the nature of the work. Thus, Counts 3(a) and (b) do not
involve any material falsity, if any falsity at all.

Count 4 was properly dismissed. Harrison does not state which sig-
nature was fraudulent or unauthorized, nor who perpetrated the fraud,
nor how the signature was fraudulent. He thus fails Rule 9(b)'s plead-
ing requirements.

Also, even if Harrison had pled fraud with the requisite particular-
ity, a falsified signature on a form, not itself a claim for payment, not

                     18
apparently required for payment, and not connected to substantive
conditions required for payment, is not material under Berge.

Count 5 was properly dismissed. The allegations of breaches of
contractual and fiduciary duty amount to no more than allegations of
poor and inefficient management of contractual duties. The district
court was correct in holding that poor, or to use Harrison's term,
"non-cost-effective," (Amended Complaint ¶ 25(f)), management is
not actionable under the False Claims Act. Moreover, Harrison does
not describe with particularity who made misrepresentations, when
they made them, nor the manner in which they were made. These are
general allegations and fail Rule 9(b)'s heightened pleading require-
ments.

Count 7 was properly dismissed. Count 7, read in the most charita-
ble light, alleges that WSRC and GPC conspired to replace two lower
salaried workers with two higher salaried workers so that they could
charge the DOE more money for the subcontract. Count 7 fails for a
number of reasons. First, Count 7 does not plead an intent to defraud
-- nowhere does Harrison assert that WSRC and GPC originally
intended to use the removed lower-salaried workers on the subcon-
tract; Harrison alleges merely that they were in fact used. Staffing
changes are common, and we should be very hesitant to allow such
a claim to stand lest we impose unnecessary regimentation on govern-
ment contractor staffing decisions. Second, Harrison in fact pleads no
facts that could amount to fraud -- the higher salaried workers used
for the bid proposal were actually staffed on the GPC subcontract.

Count 8 was properly dismissed. Count 8 utterly fails Rule 9(b)'s
demand for particularity. Count 8 does not say or even hint who
ordered the subcontractors to purchase items, which subcontractors
were so ordered, when they were ordered, nor what they were ordered
to purchase. Harrison tries to cover up this deficiency by using an
illustrative example (fully-furnished double-wide trailers), which he
does not even allege was one of the items at issue in the allegations.
(Amended Complaint ¶ 33.) The "clear intent of Rule 9(b) is to elimi-
nate fraud actions in which all the facts are learned through discovery
after the complaint is filed." United States ex rel. Stinson, Lyons, Ger-
lin & Bustamante, P.A. v. Blue Cross Blue Shield of Georgia, Inc.,
755 F. Supp. 1040, 1052 (S.D. Ga. 1990), on reconsideration Stinson,

                     19
Lyons, 755 F. Supp. 1055 (internal quotation omitted). Harrison
appears to be on a fishing expedition with this claim.

Count 9 was properly dismissed. This allegation simply does not
state a violation of the False Claims Act. Nowhere does it state that
a claim of any sort was presented to the DOE or that payments were
made contingent upon representations by the Defendant or upon com-
pliance with the "conditions" in the regulation cited by Harrison.
Again, this count amounts to no more than an allegation of poor man-
agement, which, as the district court noted, is not cognizable under
the False Claims Act.

Count 10 was also properly dismissed. Count 10 alleges a conspir-
acy to routinely "sole source" modifications of the ITP Training Proj-
ect contract, in violation of the DOE regulations requiring competitive
bidding. First, Harrison raises this claim only in his brief. Harrison
argues that the claim was always there in the documents filed with the
complaint and that a court can consider these documents. See
Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir.
1996); United States ex rel. McCoy v. California Medical Review,
Inc., 723 F. Supp. 1363, 1367 (N.D. Cal. 1989). Even so, a court can-
not be expected to parse through 1400 pages of documents, as Harri-
son submitted to the district court below, in order to invent a claim
whole cloth for the plaintiff. Second, to the extent that an allegation
of a conspiracy to fraudulently sole source can be gleaned from his
complaint (cf. Amended Complaint ¶¶ 27, 37), this allegation fails
Rule 9(b)'s requirements since Harrison did not plead how sole-
sourcing was accomplished in a fraudulent way, what false statements
were made to induce sole-sourcing, when they were made, by whom,
etc. Therefore, insofar as Count 10 alleges a conspiracy to extend the
ITP Training Contract by fraudulently-induced approvals for sole-
sourcing, we refuse to consider this newly-raised and vaguely pled
allegation.

The remaining claims need a closer analysis.

Count 1 and Count 6 will be treated together since they revolve
around the same issues.12 Counts 1 and 6 basically allege that WSRC
_________________________________________________________________
12 Count 1(e) must be dismissed. Count 1(e) asserts that WSRC misrep-
resented that it would offer the ITP Training subcontract on a firm-fixed-

                    20
submitted false information to the DOE so that the DOE would allow
WSRC to subcontract the ITP Training Project. This false information
included representations that (1) the need for the job was one-time
and short-term, so it did not make sense for WSRC to use its own
employees, even though they were cheaper; (2) the subcontractor
would incur zero "Other Direct Costs"; and (3) the subcontractor's
overhead costs would be a certain amount, when WSRC knew that
these would be substantially higher.13 WSRC submitted all of these
misrepresentations to the DOE in either the "Make or Buy Analysis"
or the PUR package, both of which were used by the DOE to evaluate
whether or not to approve subcontracting and the particular subcon-
tractor.

Relying on a mixture of false certification and fraud-in-the-
inducement cases discussed in section II(B), supra, Harrison asserts
that because of these fraudulent misrepresentations to the DOE,
WSRC obtained a "fraudulent approval" for the subcontract and there-
fore all demands for payments made under the subcontract were false
claims. Stated in its strongest form, Harrison alleges that WSRC mis-
represented the need for and costs of subcontracting in order to con-
vince the DOE to approve funding for a subcontractor, and this
funding was in excess of what the government would have legiti-
mately incurred if WSRC had not made the misrepresentations. Harri-
_________________________________________________________________
fee basis when in fact the contract was offered on a cost-plus basis. First,
WSRC never represented that it would offer the subcontract on a firm-
fixed-fee basis, only that it could. Second, this fact was clearly not mate-
rial to the DOE's funding decision since the DOE continued with the
funding fully aware that the subcontract was let on a cost-plus basis.
13 In order for liability for representations (2) and (3) to attach, Harrison
must prove that WSRC would not have incurred these"other direct
costs" or these additional overhead costs had WSRC undertaken the ITP
Training Project on its own. If the ITP Training Project was necessary
under WSRC's contract with the DOE, and if the "other direct costs" and
higher overhead were necessary to the ITP Training Project, regardless
of whether WSRC or a subcontractor performed the work, then these
alleged falsities could not have been material to the DOE's funding deci-
sion. No matter what these costs were, the DOE would have been
required to pay them as necessary under the contract.

                   21
son points out that DOE approval was necessary before WSRC could
subcontract out the project.

Under the test developed in section II(B), supra , these alleged falsi-
ties are sufficient grounds for a False Claims Act claim to survive a
Rule 12(b)(6) motion.

1) False statement. Given that we are reviewing a decision to grant
a Rule 12(b)(6) motion, we must take Harrison's allegations as true
and accept that the need for ITP Training was more than just "one-
time" and "short-term" of no more than 1.5 years, and that the over-
head and "Other Direct Cost" cost-estimates were under-estimated.
Thus, Harrison submitted false statements to the DOE.

2) Requisite scienter. Again, we must take Harrison's allegations
as true, that WSRC in fact knew that the above statements were false.

3) Materiality. Harrison argues that WSRC's false statements meet
Berge's test for materiality in that they would have a "natural ten-
dency to influence" the DOE's decision whether to approve the sub-
contract. See Berge, 104 F.3d at 1549.

WSRC argues that the allegedly false statements in Counts 1 and
6 were immaterial to the DOE's decision to pay for the ITP Training
Project. First, WSRC argues that (1) Harrison's own allegations show
that ITP Training was necessary to WSRC's contract with the DOE;
(2) the DOE was bound by the contract to pay WSRC's costs in per-
forming tasks necessary to that contract; therefore (3) the allegedly
false statements could not have been material to the DOE's decision
to pay. This argument by WSRC misconstrues Harrison's complaint,
however. Harrison does not argue that any claim submitted by WSRC
for ITP Training would be a false claim. Harrison argues that when
a contractor knowingly makes a misrepresentation to the government
about the need to hire, and the cost of hiring, a subcontractor to per-
form a particular service, and the government is induced by these mis-
representations ultimately to pay more than it otherwise would have
for the service, then the claims for payment to the subcontractor are
false claims. Under this theory, the false statements were material to
the government's decision to pay a higher price for a subcontractor
than it would have had to pay to WSRC.

                     22
WSRC's second materiality argument also fails. WSRC argues that
there was no material connection between the DOE's approval and
the allegedly false statements because the DOE knew that subcon-
tracting would be more expensive than performing the ITP Training
Project in-house. WSRC's own estimates submitted to the DOE stated
that subcontracting would be more expensive than"making" the ITP
Training Project in-house; nonetheless the DOE approved WSRC's
request to subcontract. Thus, says WSRC, the DOE's approval was
based only on the lack of in-house personnel at WSRC, not statements
about the cost or duration of the project.

The above argument by WSRC misses its mark. Even if the DOE's
decision to allow subcontracting was only predicated on WSRC's
alleged lack of personnel, and even if WSRC actually lacked person-
nel (Harrison never alleges otherwise), Harrison has still alleged
material falsities. WSRC submitted to the DOE that, even though sub-
contracting was more expensive than performing the task in-house,
WSRC did not currently have the personnel. To make its request more
persuasive, WSRC allegedly low-balled the cost of hiring a subcon-
tractor. WSRC stated to the DOE that subcontracting rather than hir-
ing more staff (which would have been cheaper) was necessary for
two reasons: (1) because of the short-term nature of the ITP Training
Project, permanent staff should not be hired, and (2) in order to pre-
vent interruptions in training. The only rational reason why the DOE
would have approved paying a higher price to a subcontractor is that
it believed at least one of the two reasons offered by WSRC.

Harrison has alleged only that the first of these two reasons was
false. Berge indicates that questions of materiality "partak[e] of the
character of a mixed question of fact and law." 104 F.3d at 1460. On
the pleadings, it is difficult to say whether or not WSRC's allegedly
false statement was material to the DOE's funding decision, since
there was another potential basis for the DOE to rely upon in making
its decision. At the very least, however, at this 12(b)(6) stage we can
say that WSRC's allegedly false statement with respect to the short-
term nature of the project was "capable of influencing agency action."
See id. at 1459.

Finally WSRC argues that WSRC's statements cannot create False
Claims Act liability because they were only estimates. Expressions of

                    23
opinion are not actionable as fraud; fraud may only be found in
expressions of fact which "(1) admit[ ] of being adjudged true or false
in a way that (2) admit[ ] of empirical verification." Presidio Enters.,
Inc. v. Warner Bros. Distributing Corp., 784 F.2d 674, 679 (5th Cir.
1986). See also Boisjoly v. Morton Thiokol, Inc. , 706 F. Supp. 795,
810 (D. Utah 1988) (no False Claims Act liability for statement
"clearly not a statement of fact that can be said to be either true or
false"). The fact that cost figures are clearly marked as estimates
might affect their ability to influence agency decision-making under
the Berge materiality standard. However, an opinion or estimate car-
ries with it "an implied assertion, not only that the speaker knows no
facts which would preclude such an opinion, but that he does know
facts which justify it." W. Page Keeton, et al., Prosser & Keeton on
the Law of Torts § 109, at 760 (5th ed. 1984). Harrison has alleged
that WSRC knew each of these statements was false. The DOE could
have been influenced by each of them under the legally reasonable
belief that WSRC did not know its own estimates were false.

4) Involved a claim. WSRC submitted numerous invoices for reim-
bursement of the amounts it paid out to the subcontractor for the ITP
Training Project, each of which constitutes a "claim" under the False
Claims Act. The fraud-in-the-inducement cases discussed in section
II(B), supra, provide sufficient legal precedent for Harrison's com-
plaint in Counts 1(a)-(d) and 6 to survive the Rule 12(b)(6) motion.
WSRC argues that the fraud-in-the-inducement cases may be distin-
guished because in those cases the defendant was the recipient and
beneficiary of the contract that was fraudulently obtained.14 WSRC is
correct in portraying the facts of each of the fraud-in-the-inducement
cases. WSRC does not explain why this fact was relevant to those
decisions, however. In none of those cases did the courts indicate that
False Claims Act liability was contingent upon the defendant's status
as recipient and beneficiary of the contract. More importantly, the lan-
guage of the False Claims Act statute does not anywhere state that
False Claims Act liability depends upon a defendant's status as a
recipient or beneficiary of the fraudulently induced contract. All that
_________________________________________________________________
14 Although Harrison argues that WSRC benefitted by increasing its
costs under its contract with the DOE, WSRC challenges this assertion,
arguing that WSRC received no benefit from increasing its costs under
its contract with the DOE.

                    24
is required is the submission of a false claim. In this case, similar to
the facts in, e.g., United States ex rel. Marcus v. Hess, 317 U.S. 537,
United States v. General Dynamics Corp., 19 F.3d 770, and United
States ex rel. Hagood v. Sonoma County Water Agency , 929 F.2d
1416, defendant WSRC allegedly made misrepresentations to the
government about a matter material to the award of a contract and
therefore:

          [the] 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].

United States ex rel. Marcus v. Hess, 317 U.S. at 543. Therefore, the
district court's decision with respect to Counts 1(a)-(d) and 6 must be
reversed and the case remanded for further proceedings on these
claims.

Count 2. We dispose of Count 2(b) first. In Count 2(b), Harrison
asserts essentially that WSRC was under a continuing duty to report
undisclosed conflicts of interest to the DOE when the GPC subcon-
tract was expanded. WSRC argues that there was no duty, particularly
in the absence of a request from the DOE. We affirm the district
court's dismissal of Count 2(b). Harrison has not alleged that the
DOE made any requests for further certifications or that WSRC actu-
ally made such certifications. Nor has Harrison alleged that the DOE
conditioned approval of later extensions of the GPC subcontract, or
payments thereunder, upon continuing conflicts disclosures. To the
extent that Harrison is asserting an implied certification by silence,
see note 8, supra, Harrison's claim fails on the pleadings because he
has never asserted that such implied certifications were in any way
related to, let alone prerequisites for, receiving continued funding. See
Thompson, 125 F.3d at 902; Joslin, 984 F. Supp. at 383-84.

In Count 2(a), Harrison asserts that WSRC falsely certified that
there were no conflicts of interest between GPC and WSRC. This
claim fits squarely into the false certification cases discussed in sec-
tion II(B), supra, and will be discussed further below.

1) False Statement. Taking Harrison's allegations as true, there
was a false statement made to the DOE about a lack of conflicts of

                     25
interest. Complicating the matter, though, this statement was made
directly by GPC to WSRC, not by WSRC to the DOE. WSRC argues
that GPC's allegedly false certification cannot be attributed to WSRC
because the statement was made by GPC to WSRC about a contract
separate from WSRC's contract with the DOE. WSRC merely passed
along GPC's false certification to the DOE. In this situation, where
the prime contractor allegedly knows that a material certification by
a subcontractor was false, we find as a matter of law that the prime
contractor has adopted the subcontractor's certification by submitting
it to the government. Therefore, we hold that, if Harrison's complaint
is accurate, WSRC was responsible for GPC's false certification.

2) Requisite Scienter. Taking Harrison's allegations as true, when
WSRC adopted GPC's certification, this act was undertaken with the
requisite scienter.

3) Materiality. The prerequisite standard in the false certification
cases is essentially a heightened materiality requirement: the govern-
ment must have conditioned payment of the claim upon certification
of compliance with the provision of the statute, regulation, or contract
at issue. See Thompson, 125 F.3d at 902; Joslin, 984 F. Supp. at 383-
384. Fairly read in the light most favorable to Harrison, see Mylan
Laboratories, Inc., 7 F.3d at 1134, Harrison's complaint asserts that
WSRC was required to certify that there was no conflict of interest
in order to obtain the DOE's approval for the GPC subcontract. On
review of the district court's Rule 12(b)(6) disposition, we must
accept Harrison's pleadings as true. See id.

4) Involved a Claim. If Harrison's allegations in Count 2(a) are
true, then WSRC could face False Claims Act liability for each claim
submitted as a result of the false certification. The logic, a combina-
tion of the false certification and fraud in the inducement theories,
would be as follows: This false certification was a pre-requisite to
approval of the subcontract. Each claim for payment under the con-
tract was therefore submitted under a contract which was fraudulently
approved. So, WSRC could face False Claims Act liability for each
claim for payment under the GPC subcontract.

CONCLUSION

Although Harrison may ultimately lack the ability to prevail on the
evidence, we do think he has stated potential claims under Counts

                    26
1(a)-(d), 6, and 2(a). Harrison has alleged more than just waste and
mismanagement. He has alleged that WSRC made intentional misrep-
resentations to the government, and that WSRC submitted a certifica-
tion known to be false, about matters material to the government's
decision to grant a subcontract. These false statements caused the
government to pay "claims" at a higher cost than it would have paid
absent the fraud. These allegations are sufficient to state claims under
the False Claims Act.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED
FOR PROCEEDINGS CONSISTENT WITH THIS DISPOSITION

                    27