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Ninth Circuit Decision Is, Oddly, Good News for Both Relators and Defendants

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With respect to relators, in a matter of first impression before the U.S. Court of Appeals for the Ninth Circuit, the court held that knowingly false underbidding can support False Claims Act liability.

In Hooper v. Lockheed Martin, No. 11-55278 (9th Cir. Aug. 2, 2012), the relator was an engineer working for Lockheed, and he claimed that Lockheed defrauded the Air Force under a government contract by knowingly underbidding the contract. Lockheed argued that the estimates in its bid could not predicate liability because an estimate is merely an opinion or prediction, as opposed to a false statement. The relator, however, produced evidence that Lockheed employees were told to lower their bids without regard to actual cost. This evidence, according to the Ninth Circuit, raised a genuine issue as to whether Lockheed had the requisite knowledge when it submitted its bid for the contract. Thus, the court held that summary judgment for Lockheed on this claim was inappropriately granted and, in light of this decision, relators should be on the lookout for bids based on lower-than-actual costs as a potential basis for liability.

As to defendants, this decision includes a discussion of the “government knowledge” defense. This defense—often used by defendants—is based on the theory that, if the government is aware of the allegedly wrongful conduct, the conduct is not a basis for False Claims Act liability. Specifically, in addition to the false-bidding claim discussed above, the relator in this case also alleged that Lockheed improperly used “freeware” software and improperly conducted required testing under the contract. Lockheed, however, produced evidence that it fully disclosed the fact that it was using the freeware to the government contracting officer, and the contracting officer herself stated that the use of such freeware was not prohibited under the contract and, in fact, she approved its use. The Ninth Circuit affirmed the district court’s grant of summary judgment to Lockheed on this claim because “Lockheed submitted overwhelming evidence that it shared with the Air Force…the use of [the freeware] and also disclosed…its testing procedures.” This holding provides support for the viability of the government knowledge defense and should encourage defendants to avert False Claims Act liability by fully disclosing their acts to government officials and obtaining their approval.

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