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: Virginia Qui Tam Law

Trouble on the Horizon: Fourth Circuit Affirms Judge Lee's Dismissal of FCA case in United States ex rel. Godfrey v. KBR, Holds that Wrongful Terminations Claims under the FCA are Subject to Arbitration Clauses in Employment Contracts.

By Zachary A. Kitts

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    On Friday, May 17th, the Fourth Circuit affirmed the U.S. District Court for the Eastern District of Virginia's dismissal of FCA claims brought by two relators against their former employers -- Kellogg, Brown & Root Services, Inc. and Services Employees International, Inc. To read the district court opinion dismissing the Complaint in United States ex rel Godfrey v. Kellogg Brown & Root, Inc., click here. To read the Fourth Circuit's opinion, click here.

    The most troubling element of the opinion, in my mind, concerns the Court's ruling on the enforceability of the arbitration provisions of the relator's employment contracts. But first, a little background on the case.

    The claims arose out of a contract with the Department of Defense to transport fuel and other supplies throughout Kuwait and Iraq. The contract included a standard government document, called a DD Form 1155, which included terms that required the defendants to meet certain requirements for maintaining the vehicles and equipment to ensure the safety of their personnel and the Government's property that was being transported. The defendants began performing work on the contract about five months prior to signing the DD Form 1155, but when that form was executed, it was back-dated to reflect the date on which the defendants' work began.

    The relators alleged FCA violations in several difference scenarios. First, relators alleged that the defendants failed to satisfy the contract's maintenance and repair requirements by failing to perform routine maintenance procedures on trucks and other vehicles. Relators alleged that defendants (1) made false certifications on the DD 1155; (2) wrongfully induced the United States to enter into the contract in violation of the FCA, and (3) engaged in a conspiracy to submit false claims to the United States for payment in violation of the FCA.

    Relators also included retaliation claims under 31 U.S.C. 3730(h), alleging that when they complained to their superiors about what they observed--i.e., the falsified DD 1155 and the defendants' failure to perform the work called for in the DD 1155--they were terminated from their jobs.

    Affirming the district court's dismissal, the Fourth Circuit held that the relators' complaint was properly dismissed, and that the district court did not err in denying their request for leave to file another amended complaint. The appeals court held that the relators could not state an FCA claim for fraudulent inducement. The court reasoned that the defendants' statement that they would perform the maintenance and repair work specified under the contract was not an objective falsehood, but was, at best, a disputed legal question.

    Turning to the fraudulent inducement claim, the court noted that, since the DD Form 1155 was not executed until five months after the defendants' work began, the statements contained in that document could not have induced the Government to contract with the defendants.

    Moreover, the court stated that because the DD Form 1155 is a standard, boilerplate government form without an express certification, the repair and maintenance language relied on by the relators in the DD Form 1155 was not material to the contract. Presumably, had the repair and maintenance language been of such profound importance to the contract, it would not have been included on the DD Form 1155, but would have been incorporated from some other, more specific, document attached to the contract.

    The court also held that the relators' complaint failed to satisfy Rule 9(b)'s pleading requirements, since the relators failed to allege how the DD Form 1155 influenced the government's decision to award the contract to the defendants. Ultimately, the court concluded that the relators' allegations amounted to a breach of contract claim, and not an FCA claim, but noted that the United States, the actual party to the contract, had not brought a breach of contract action against the defendants.

    With respect to the relators' employment claims and the arbitration agreements, the Fourth Circuit applied the same logic it has applied to Fair Labor Standards Act and other employment claims, and held that the arbitration clauses in the relator's respective employment contracts were enforceable.

    It is unclear if the Court would have made a similar finding in a successful FCA case, but this, in my mind, could be the most important thing to arise out of the Godfrey case. I say that because an arbitration provision in an employment contract requires the employee to file some sort of arbitration action instead of a sealed complaint, as required by the FCA. As readers of this blog are aware, qui tam cases must--absolutely must--be filed under seal, with no public disclosure of the information contained in the Complaint.

    So relators have a difficult dilemma. If they follow the law and file their claims under seal, they could lose their wrongful termination claims, because such claims would have to be filed as an arbitration action. On the other hand, if an arbitration action were to be filed making allegations of wrongful termination under the FCA, that would almost certainly count as a public disclosure of the allegations of the qui tam case, thus precluding the plaintiff/relator from bringing his or her qui tam case.

    As a result of that, relators could, in theory, be forced to choose between bringing their employment law claims for wrongful termination and pursuing a qui tam action under the FCA. At this one aspect of the Godfrey holding must be challenged in the U.S. Supreme Court.

Zachary Kitts
Cook & Kitts, PLLC

Full post as published by Virginia Qui Tam Law on May 23, 2008 (boomark / email).