Southern District of New York Opinion Provides Guidance on Satisfying Scienter Requirement Under False Claims Act
Not every mistake or negligent act gives rise to liability under the False Claims Act. That principle has long been central to the FCA. But the dividing line– between making a mistake, on the one hand, and “knowingly” or “recklessly” submitting a false claim, on the other–can be murky.
In United States ex Rel Kirk v. Schindler Elevator Corp., No. 05-cv-2917, 2015 WL 5296714 (S.D.N.Y. Sept. 10, 2015), the United States District Court for the Southern District of New York shed light on this line, granting summary judgment in favor of the defendant, a vertical equipment manufacturer, because there was no genuine issue of fact regarding whether the defendant had knowingly submitted false VETS-100 reports to the government.
The case involved the Vietnam Era Veterans Readjustment Assistance Act (“VEVRAA”), 38 U.S.C. § 4212, which provides that contractors who do work with the federal government must submit annual reports to the Secretary of Labor (known as VETS-100 reports). Those reports require, inter alia, information regarding “the number of employees in the workforce… and the number of such employees . . . who are qualified covered veterans” , “the total number of new employees hired by the contractor during the period covered by the report and the number of such employees who are qualified covered veterans”, and the “the maximum number and the minimum number of employees of such contractor during the period covered by the report and the number of such employees who are qualified covered veterans” Id. 38 U.S.C. § 4212(d)(1)(A)-(C).
Daniel Kirk, who was a “journeyman mechanic” was terminated by the defendant and filed a complaint with the Office of Federal Contract Compliance in which he alleged that he was “improperly demoted and constructively terminated” because he was a veteran. In 2005, he brought a qui tam action on behalf of the United States alleging that the defendant did not comply with VEVRAA. The core of his complaint was that the defendant violated the False Claims Act by “(1) knowingly presenting false claims for payment to the federal government and (2) knowingly submitting false VETS-100 reports material to false claims for payment during the period 1999-2007.” The Court disagreed. It emphasized that under the relevant provisions of the False Claims Act, 31 U.S.C. 3729 (a)(1) and (a)(1)(B), liability is imposed on those actors who act knowingly. Quoting the Second Circuit, the Court held that “the requisite intent for FCA purposes is the knowing presentation of what is known to be false as opposed to negligence or innocent mistake.” (internal citations omitted).
Kirk advanced five principal arguments in support of his claim that the defendant acted knowingly: (1) that the defendant lacked a formal, written process for collecting and tracking the veteran status of its employees; (2) that the defendant’s Manager of Equal Employment Opportunity, Safety, and Affirmative Action Programs had previously admitted that the defendant had no process in place for identifying veterans—a statement she later disavowed; (3) the existence of internal emails which purportedly revealed that the defendant did not have “complete and accurate information regarding the veteran status of its employees,” (4) that the defendant did not keep accurate track of veteran status information in order to save costs; and (5) employee declarations from two employees of the defendant, including himself, who stated that they had no recollection of being asked about their veteran status when they first started at the defendant company. The Court held that none of those arguments created a genuine issue of material fact to avoid the entry of summary judgment. Ultimately, it held that “while Kirk points to what may be a few minor violations an eight year period- a few missing numbers in a report, a problem with data entry, or confusion over a regulatory interpretation- there is no evidence that [the defendant] was out to cheat the federal government out of its money.”