The district court denied KBR’s motion to dismiss a qui tam complaint alleging it violated the FCA while performing on its LOGCAP III contract. KBR argued that the relators’ allegations were all disclosed to the government via reports from various audit agencies and were therefore barred by the public disclosure bar. The court agreed the reports qualified as public disclosures but nonetheless found the relators were covered by the original source exception, because they had worked directly for KBR on the contract and because their information—including allegations the company tried to cover up its noncompliance—materially added to the record.
Defendants KBR Inc. and Kellogg Brown & Root Services Inc. moved to dismiss a qui tam complaint alleging they violated the False Claims Act in relation to their contract under the Army’s Logistics Civil Augmentation Program.
KBR’s performance on the contract was subject to significant government criticism, including performance deficiencies and bills for questionable costs. In their complaint, the relators alleged KBR failed to redistribute excess property and materials across the sites it supported and instead purchased and billed for new equipment. The relators argued this violated the FCA, because KBR billed for unreasonable and unallowable costs that the government would not have paid for otherwise. When the government declined to intervene, the case was unsealed and subject to various proceedings. Here the defendants moved to dismiss.
KBR argued the relators’ allegations were already known to the government before the suit was filed, via the findings of various audits and reports from government oversight agencies. KBR argued these documents should be considered public disclosures. In response, the relators argued the reports, at most, revealed isolated instances of a breach of contract rather than an FCA violation.
While it did not concede to the accuracy of the government auditors’ findings, KBR submitted multiple audit reports documenting instances of the government’s concerns about the acquisition of excess vehicles and equipment and multiple failures to cross-purpose excess materiel.
The court noted that the Seventh Circuit had held that facts are in the public domain if they are in the government’s possession. While the majority view is that disclosure to the government alone does not constitute public disclosure, the Seventh Circuit has maintained its position that government possession of information triggers the public disclosure bar. The court therefore acknowledged that the allegations were publicly disclosed.
The relators argued that none of the documents disclose that KBR’s failures were knowing, intentional, and covered up. However, the Seventh Circuit has held that such documents provided a sufficient basis to infer that the defendant presented false information, implicating the FCA. The court also noted the disclosures were made to government officials with managerial responsibility over KBR and its performance. Thus, the court held that the first prong of the public disclosure bar had been met.
KBR also argued that the relators are not an original source because their allegations did not materially add to those that have been publicly disclosed and were not independent of the public disclosures. The relators disagreed, arguing that their allegations materially added to the public disclosures because they revealed deliberate and systemic failures that KBR attempted to cover up.
The court sided with the relators, finding they qualified for the original source exception to the public disclosure bar. The court noted the relators worked for KBR and directly on the LOGCAP III contract, and therefore had direct and independent knowledge of the fraudulent activity. The relators also voluntarily disclosed their information to the government. The court found their allegations and documents materially added to the audits, reports, and letters that were publicly disclosed.
For example, the relators alleged KBR deleted internal reports documenting excess materiel, because it was “too dangerous” to risk the government finding the report during an audit. KBR also allegedly directed employees not to speak to anyone outside KBR about internal business after relator Howard alerted the company’s senior management about its failure to repurpose excess inventory. The relators also alleged KBR decided not to correct materiel in virtual storerooms because it would risk an audit. The relators also submitted an extensive list of emails and conversations they were privy to, many of which were not disclosed in governmental audits, reports, or letters.
Based on those findings, the court held the relators materially added to the publicly disclosed information and qualified as original sources.
