Having an ambiguous contract with the government can give rise to a to False Claims Act allegations -- that is what the Chapman Law Firm discovered when it sought to sue the U.S. Department of Housing and Urban Development (“HUD”) for failing to perform a contract the firm had with HUD “for the management and marketing of single family homes in Ohio and Michigan.” See Chapman Law Firm v. United States, No. 09-891C,2012 WL 256090 (Fed. Cl. Jan. 18, 2012). The government responded to the suit alleging that Chapman had violated the False Claims Act by using unlicensed pest inspectors to perform termite inspections instead of “licensed” inspectors as the contract allegedly required. The government sought summary judgment against Chapman on the grounds that the contract called for licensed inspectors; Chapman defended, claiming that the contract was ambiguous and should be construed against the government. The U.S. Court of Claims denied the government’s summary judgment motion, applied the legal doctrine of contra proferentem, and construed the contractual ambiguity against the government.
I commend to you the “Fraud Alert” by John Boese and Douglas Baruch of Fried Frank which discusses the Chapman case and the significance of the Court’s application of the contra proferentem doctrine in a False Claims Act case: CIVIL FALSE CLAIMS ACT: Court Applies Contra Proferentem Doctrine Against the Government in an FCA Case Based on An Ambiguous Contract Provision. The authors explain that the contra proferentem doctrine is a rule of contract interpretation often applied in insurance contracts and to other commercial contexts, but until Chapman, the rule had not been applied in an False Claims Act ("FCA") case. Based on the principal that “a party that drafts and imposes an ambiguous term should not benefit from that ambiguity,” they explain that the rule provides that “a latent ambiguity in a contract provision to be construed against the party that drafted the [ambiguous] provision.”
The authors point out that the contra proferentem doctrine can be “be significant in a broad spectrum of FCA cases” as so many of such cases are based on allegations that the defendant violated “requirements incorporated into government grants, contracts, and regulations.” For example, the authors cite to the FCA cases where defendants are accused of falsely certifying their compliance with the myriad of contractual requirements frequently found in government contracts. See 11/30/11 blog entry on “implied false certification.” “These requirements,” they explain, “are drafted by the government, and where they are ambiguous or capable of more than one reasonable interpretation, the rule that ambiguous requirements are construed against the drafter places the burden on the government to draft clear requirements, which is where that burden belongs.” The authors further observe that a defendant’s “reasonable interpretation” of an ambiguous contract with the government can further support a defendant’s claim that they acted in “good faith” and did not have the requisite intent for FCA liability.