Government Contracting -- 2017



United States ex rel. Harman v. Trinity Industries, Inc.   (5th Circuit)

FCA liability despite compliance with federal requirements

This case is about whether the False Claims Act (“FCA”) allows for private regulatory violation suits that allege false or fraudulent claims by manufacturers despite clear assurances from the government that the manufacturer was in full compliance with the requirements for reimbursement.

The NAM filed an amicus brief arguing that the lower court's decision distorts the FCA and nullifies even express, authoritative assurance of compliance from the government. In this case, the government disagreed with the substance of the private party's claim, concluding at each stage of its review that the highway guard rails in question complied with an array of intricate technical standards. Consequently, the trial court should not have allowed a claim for fraud to proceed, especially when the government, the allegedly defrauded party, has determined that the fraud was never committed.

Our brief also outlined the devastating consequences for businesses both in terms of financial costs and in reputational harm from unwarranted FCA suits. This case alone involves potential liability of $663 million in damages and penalties, the largest FCA judgment in the law's century-and-a-half-long history. It also deepens businesses' regulatory insecurity, and even makes companies that do not sell directly to the government liable for damages under the False Claims Act. .

The Fifth Circuit agreed with our position and reversed the lower court’s ruling against Trinity. The court determined that no fraud occurred due to a lack of materiality, an essential element of fraud. Without a finding of fraud, damages should not have been awarded. To show materiality in an FCA action, plaintiffs are required to show that the government received something other than what they were promised. Damages are then determined by comparing the value of what was promised with what was received. As a matter of law, materiality cannot be found when noncompliance with what was promised is determined to be minor or unsubstantial. When the government has determined noncompliance is immaterial, a jury cannot reverse that decision absent a showing of a reason to doubt that the government’s decision was genuine. The government thoroughly inspected and approved each installation of guard rails by Trinity, rendering noncompliance as unsubstantial. Due to this, there was no fraud, and damages could not be awarded.


Related Documents:
NAM amicus brief  (March 28, 2016)

 


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