Cochise Lives: CO Who Participated in Fraud Scheme Cannot Trigger Three-Year Statute of Limitations Based on Government Knowledge; United States District Court for the Northern District of Alabama, Northeastern Division, No.: 5:13-cv-2168-LCB, U.S. ex rel. Billy Joe Hunt v. Cochise Consultancy Inc., et al.

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The district court denied the defendants’ motion to dismiss a qui tam complaint alleging they fraudulently induced the government into entering into a subcontract for security services. The defendants argued the claims were not alleged with particularity, but the court found the relator identified the government and contractor employees who had participated in a kickback and bid-rigging scheme, described the contract work, and provided the contract numbers and timeline for performance. Because he alleged the contract was steered to one defendant due to bribery and bid-rigging, the relator asserted that every invoice submitted under the subcontract was tainted by fraud. The court found this more than sufficient to survive a motion to dismiss. The defendants argued the claims were time-barred, because a government official had been aware of the allegations more than three years before the complaint was filed. However, the court noted that the official cited by the defendants was himself involved in the fraud, and that adopting the defendants’ position would lead to the absurd result of dramatically shortening the statute of limitations for qui tam complaints anytime a government official participated in fraud.

Relator Billy Joe Hunt filed a whistleblower lawsuit alleging that The Parsons Corporation, d/b/a Parsons Infrastructure & Technology, and Cochise Consultancy Inc. d/b/a Cochise Security, along with an employee of the U.S. Army Corps of Engineers, conspired to submit false or fraudulent claims to the government in violation of the False Claims Act.

The complaint was previously dismissed as barred by the statute of limitations, but that decision was reversed by the Eleventh Circuit and the reversal was upheld by the Supreme Court. The case is now back before the district court with renewed motions to dismiss.

Hunt alleged that Parsons and Cochise defrauded the Department of Defense for work they performed as defense contractors in Iraq. Hunt worked for Parsons under a DoD contract to clean up excess munitions in Iraq. Under the contract, Parson was required to provide adequate security for its employees, subcontractors, and others working on the project. Parsons therefore sought a a subcontractor for security services.

The company initially awarded the subcontract to ArmorGroup, but according to Hunt’s complaint, a USACE contracting officer in Iraq named Wayne Shaw accepted bribes from Cochise in exchange for his help steering the contract to them. Hunt alleged that Shaw directed him to ask another Parsons employee to award the subcontract to Cochise. When the Parsons employee refused, saying that such a directive must come from the agency, Shaw created a forged directive rescinding the award to ArmorGroup and awarding the subcontract to Cochise. Hunt also alleged Shaw misrepresented the contents of the document to another USACE CO, who was legally blind, in order to mislead him into signing the directive.

However, the Parsons employee responsible for the contract refused to implement the directive, believing the award to Cochise was improper. Soon after, the CO who signed the directive learned its true contents and rescinded it. Nonetheless, a different Parsons employee awarded the contract to Cochise through a no-bid process, citing an urgent and immediate need for the security services. Hunt alleged this second Parsons employee was a partner in the scheme.

Hunt also asserted the government overpaid for Cochise’s services, because it had to pay $2.9 million to provide armored vehicles for Cochise, where ArmorGroup would have provided its own vehicles. After USACE CO Shaw rotated out of Iraq, Parsons immediately reopened the subcontract for bidding and awarded it to ArmorGroup.

Several years later, Hunt reported the fraud to the United States. When interviewed about the fraud, Hunt described the scheme and admitted participating in kickbacks, for which he eventually served 10 months in federal prison.

After being released from prison, Hunt filed this qui tam complaint, claiming Cochise fraudulently induced the government into entering into the subcontract through the use of bid-rigging and illegal kickbacks. A second theory—that the defendants had a legal obligation to disclose credible evidence of improper conflicts of interest and payment of illegal gratuities to the United States but failed to do so—was dropped because the regulatory authority for this theory was not implemented until after the time of the alleged conduct.

The defendants moved to dismiss the remaining claim, arguing that Hunt failed to plead his fraud allegations with the requisite particularity; that the government had knowledge of the alleged false claims thereby negating the scienter requirement; and that the claims are time barred by a different provision of the FCA not addressed by the Eleventh Circuit or the Supreme Court.

First, the defendants argued Hunt failed to specifically identify any actual claims for payment that either defendant made to the government. They also argued that by referring to them collectively as “the defendants,” Hunt rendered his claim vague and insufficiently specific.

The court disagreed, noting that Hunt identified the contracts by number and thoroughly described the general contract and work to be performed by Parsons and Cochise. Hunt also provided the dates of these contracts and asserted that every claim for payment under the contracts at issue is a false claim subject to penalties and liability. The court found this sufficient to put the defendants on notice of the claims against them. Further, the court reasoned that, taken as a whole, the complaint sufficiently alleged that claims for payment were submitted.

The court did not find the use of the word “defendants” to be vague or confusing. Rather, the complaint specifically identified which defendant is alleged to have done certain acts. In the instances in which he aggregated the two by referencing “the defendants,” the court found it clear the allegations referred to both parties. The court found the complaint was not a random shotgun pleading, but was sufficiently specific as to the roles of each party, separately and together.

The defendants also argued the conspiracy allegations were not plead with particularity, but the court again disagreed. Hunt generally alleged that Cochise, through its president, gave improper gifts and gratuities to Shaw so that Shaw would use his position and influence to ensure that Parsons awarded the subcontract to Cochise. Hunt also alleged that various Parsons employees were aware that Cochise was not qualified to perform the contract and refused to give their consent to the award. Those employees had overseen the bidding process and concluded that ArmorGroup was the most qualified contractor. Hunt also provided details of the scheme by which Shaw hoped to have the original award decision rescinded and the contract steered to Cochise, over the objections of those Parsons employees. The relator also identified the Parsons employee who helped Shaw in the scheme.

Taken as true, the court found those allegations demonstrated that Parsons, Cochise, and Wayne Shaw conspired to ensure that Cochise was given a contract it was not otherwise entitled to get; that a Parsons employee made false statements in order to see that the contract was awarded to Cochise; and that the United States was damaged as a result. The court found this sufficient to survive a motion to dismiss.

Next, Parsons argued that the government’s knowledge of the alleged fraud negated scienter. According to the defendants, the government official with ultimate responsibility over Parsons’ contract – USACE CO Wayne Shaw – had full knowledge of the alleged false claims Hunt is now relying on to support this action. Parsons argued that its representatives awarded the subcontract to Cochise in good faith, based on directives from USACE. Importantly, Parsons argued the complaint did not allege that its employees knew that Shaw had forged the directive ordering the subcontract to be awarded to Cochise. Therefore, Parsons argued that it could not have knowingly submitted a false claim.

However, the court noted that Hunt alleged that the Parsons employee who ultimately awarded the subcontract to Cochise made several false statements supporting that decision. According to the relator, the employee falsely asserted that Cochise had on-the-job familiarity with the mission that other security providers did not have, and used this false statement to support the urgency of the contract award on a sole-source basis. Hunt also alleged the employee inserted Cochise into the bidding process even though he and others knew that Cochise was not qualified to bid. Taken as true, those allegations were enough for the court to conclude that Hunt sufficiently alleged Parsons was complicit in the scheme.

Finally, the defendants argued the complaint was time-barred for a reason not addressed by the Eleventh Circuit or Supreme Court. The FCA bars actions brought (1) more than 6 years after the date on which the violation of section 3729 is committed, or (2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.

Hunt conceded that his complaint did not meet the six-year statute of limitations, but argued that he met the latter standard. The judge previously assigned to the case held that when the government declines to intervene, the latter timeliness standard does not apply. However, this holding was reversed.

In their motion to dismiss, the defendants argued that the FCA provides that a complaint must be filed within three years of “when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances.” The defendants point out that neither the Eleventh Circuit nor the Supreme Court directly addressed who the “official of the United States charged with responsibility to act in the circumstances” is for purposes of triggering § 3731(b)(2).

The defendants argued that the three-year clock began to run when USACE CO Wayne Shaw became aware of the fraudulent scheme. Hunt argued that the three-year clock was triggered when he disclosed information about the scheme to the FBI on November 30, 2010. Because the complaint was filed on November 27, 2013, that date would render the claims timely.

The court found no support for the defendants’ broad interpretation of the term “responsible official of the United States.” Further, the court reasoned that adopting this interpretation would lead to an absurd and unfair result. Under that interpretation, the time period for a relator to bring a qui tam action would be dramatically shortened any time a government official is involved in the alleged fraud. The court found it illogical to conclude that Shaw, a CO alleged to have participated in the fraud, should be considered a responsible government official charged to act in the circumstances of a fraud report.