The Fifth Circuit recently provided insight into how
to apply the Supreme Court’s Escobar materiality
standard in False Claims Act (FCA) cases based on a defendant’s
alleged false certification of compliance with underlying regulations. Abbott
v. BP Exploration and Production, Inc., 2017 WL 992506 (5th Cir. March 14,
2017).
BP, the defendant in Abbott, built
and maintained the Atlantis Platform, a semi-submersible oil production
facility in the Gulf of Mexico. The Relator worked for BP in
Atlantis’s administrative offices. During his employment, Relator grew
suspicious that BP had falsely certified compliance with certain safety
regulations, and had, therefore, submitted false claims. Relator filed a qui
tam complaint against BP and sought over $200 billion in FCA damages. The
government declined to intervene.
Prompted by Relator’s FCA complaint, the U.S.
Department of the Interior (DOI) launched an investigation into BP’s
management of Atlantis. That investigation coincided with the
high-profile explosion at BP’s Deepwater Horizon, a similar oil production
facility, generating negative press and attention for BP. Nevertheless, the DOI's investigation cleared BP of any wrongdoing in connection with
Atlantis, and its detailed report called Relator’s claims “unfounded” and
“without merit.”
Despite the DOI’s findings, Relator persisted
with his FCA lawsuit. Ultimately, in a scathing 10-page order, the
District Court granted BP summary judgment on all counts, calling BP’s alleged
errors “paperwork wrinkles,” which could not have influenced the government’s
decision to pay. See U.S. ex
rel. Abbott v. BP Exploration and Production, Inc., Case No.
4:09-CV-01193 (S.D. Tx. 8/21/14)(ECF 431).
In affirming the District Court's decision, the
Fifth Circuit honed in on the materiality issue and the Supreme Court’s Universal
Health Servs., Inc. v. Escobar, 136 S. Ct. 1989 (2016) decision. Focusing on the “demanding” materiality standard, the Court highlighted
one of Escobar’s central points: a governmental designation of
compliance as a condition of payment does not alone prove materiality. Instead,
courts must consider evidence to determine whether the government's payment of a claim truly hinges on a contractor's regulatory compliance, such as whether the government paid the claim with knowledge of the
regulatory violation. Escobar, the Court noted, "debunked
the notion that a Governmental designation of compliance as a condition of
payment by itself is sufficient to prove materiality."
Although the Government apparently did not know of BP's alleged regulatory violations when it paid BP’s claims, the DOI’s subsequent report
suggested to the Fifth Circuit that compliance with the referenced regulations
was not material to the government’s decision to pay. As the Court
observed: "As recognized in Escobar, when the DOI decided to allow the
Atlantis to continue drilling after a substantial investigation into
Plaintiffs' allegations, that decision represents 'strong evidence' that
the requirements in those regulations are not material." Having nothing to
rebut these "strong facts," the Court affirmed summary judgment for
BP.
FCA defendants can use Abbott to
defend against allegations that they falsely certified compliance with Government regulations. To show that their alleged noncompliance was not
material to the Government's decision to pay claims, a defendant could
highlight any post-payment evidence suggesting that the Government would not
have deemed the alleged regulatory violations material. For example, a
defendant could cite to government audit reports that approved the payment on
claims with the same alleged deficiency, or to post-payment correspondence
establishing the government’s knowledge of the alleged regulatory issue. The facts and types of evidence will vary, but Abbott’s reliance
on post-payment materiality evidence could apply broadly as courts continue to
craft materiality case law in Escobar’s wake.
Author: Scott Terry
Editor: A. Brian Albritton
March 29, 2017
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