Houston Texas Business Lawyer

False Claims Act Cases Against Foreign Subcontractors

The False Claims Act is a powerful tool that makes it possible for individuals to bring claims based upon knowledge of fraud against the government. A whistleblower who identifies fraud that is costing the government money can file civil litigation under the False Claims Act. If fraud is proved and the defendant accused of conning the government out of cash ends up having to pay back the money, the person or persons who initially brought the claim can be rewarded by receiving a portion of money recovered. This often totals in the hundreds-of-thousands or millions of dollars, which means there are strong financial incentives for whistleblowers to come forward and make a claim. balance-1172800

Many of the False Claims Act cases are brought against people or companies in the United States who are under contract to provide services to the government or who are paid for medical services covered by Medicaid or by Medicare. However, in some cases, foreign subcontractors are paid by the U.S. government and are committing fraud.

When foreign subcontractors exclusively do work abroad, it can be even harder for U.S. authorities to catch them in wrongdoing, unless whistleblowers come forward and make claims under the False Claims Act. The question, however, is whether federal tribunals can establish jurisdiction over foreign subcontractors. Two recent decisions in federal court have made the standard for establishing jurisdiction clearer.

False Claims Act Cases Against Foreign Subcontractors

The two recent cases in which the federal government addressed False Claims Act cases against foreign subcontractors included United States v. Kellogg, Brown & Root Servs., Inc., and United States ex rel. Conyers v. KBR.

A Kuwaiti corporation called First Kuwaiti Trading Company (FKT) was a federal subcontractor to Kellogg, Brown & Root, Inc. (KBR) and KBR submitted claims seeking $48 million in equitable adjustment as a result of delays experienced by FKT in performing work. The government paid KBR, but subsequently sued KBR and FKT for violating the False Claims Act.

FKT moved to dismiss the case because of a lack of personal jurisdiction. The court used a test called the purposeful direction test to determine if FKT engaged in intentional conduct aimed at the forum with knowledge its effects would be felt there. The Court held that it did not have jurisdiction to decide False Claims Act claims against foreign subcontractors when the subcontractors only connection to the judicial forum was a subcontract for services performed abroad.

In its ruling, the Court rejected the theory put forth by the government that the False Claims Act created a special connection between the U.S. and foreign subcontractors that created personal jurisdiction over the subcontractors.

In a second False Claims Act case, the government sued FKT for allegedly becoming involved in bribery schemes related to KBR subcontracts in Iraq. The government argued FKT knew KBR would only pay if KBR was paid after submitting claims to the U.S. government, thus FKT's actions were directed towards the United States. The Court, however, disagreed that FKT submitting false claims through KBR meant KBR had aimed its conduct towards the forum. Since FKT's contract also didn't create a meaningful connection, the court couldn't exercise personal jurisdiction in that case.

These decisions mean that when a foreign sub-contractor simply submits false claims for payment to a general contractor, this isn't enough to establish personal jurisdiction. To successfully make a False Claims Act case against a foreign subcontractor, it will generally need to be proven that the subcontractor actively conspired with the general contractor to present false claims. Whistleblowers who wish to come forward should seek legal assistance in gathering necessary evidence of a conspiracy.