For 17 years Moving Waters Industries (MWI) fought the federal government in a False Claims Act (FCA) case. MWI is a small, family-owned manufacturer of water pumps used for irrigation and sanitation systems. The particular sale at issue in the case involved sale of pumps to Nigeria. Financing documents in the transaction required the disclosure of any commissions that were not “regular.” There was not an existing regulatory definition or guidance about what the term “regular” meant, so MWI applied what it thought was a reasonable interpretation—that a normal, longstanding, market rate commission was regular. Based on a complaint asserting that the commission was in fact “irregular,” the government pursued a civil FCA case.
The NAM filed this brief in support of MWI’s appeal of the lower court's finding of liability against MWI under the False Claims Act (FCA). The brief argued that FCA “falsity” cannot be established where the violation at issue stems from an ambiguous contract term and the defendant’s actions are consistent with a reasonable interpretation of that term. The FCA is intended to protect the government’s financial resources from fraudulent conduct. It is not meant to be a tool for resolving disputes between contractors and the government over the proper interpretation of unclear contract terms. In addition, a defendant cannot be found to have acted "knowingly" under the FCA, which can include acting in "reckless disregard" of truth or falsity, if the defendant employed a reasonable interpretation of an ambiguous term.
In an opinion that will have far-reaching implications for all industries subject to potential FCA claims, on November 24, 2015, the DC Circuit found that the FCA was not intended to impose liability for an innocent, good faith mistake about the meaning of an applicable regulation. This outcome is an important victory for due process, and highlighted the fundamental unfairness of subjecting parties to liability for violating a rule without first providing notice of what the rule requires.