- Verizon Cooperates with DOJ related to Cybersecurity Allegations
- Justice Department Demonstrates its Focus on Part C Fraud with Martin’s Point $22.5 M Settlement
- DOJ, BIS and OFAC Issue Tri-Seal Compliance Note
- Booz Allen Pays $377 M to Settle Improper Indirect Cost Allegations
- NextGen’s $31 M Settlement of an Alleged False Certification and a Kickback Violation
- Things Just Got Interesting: A Disclosure, A Lawsuit and A False Claims Act Settlement
- Genotox resolves AKS parallel investigation with the DOJ
- Self-Disclose to Avoid Self-Sabotage: Clarifying DOJ’s Criminal Corporate Self-Disclosure Policy for US Attorney Offices
- With Recent Enforcement Action, DOJ and FTC Join the FCC in Targeting the Use of Ringless Voicemails
- DePuy Agrees to Pay $9.75 Million in FCA Kickback Investigation
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White Collar + Fraud + Investigations + Compliance
On Monday, the DOJ announced its settlement with L3 Technologies, Inc., Communication Systems West (“L3 Tech”), a manufacturer of communications for military systems. L3 Tech paid $21.8 Million to resolve allegations that it violated the False Claims Act (“FCA”) by knowingly submitting false claims to the Department of Defense by double counting materials. DOJ alleged that from 2008 through 2011, L3 Tech submitted dozens of contract proposals that double-charged the Government for low-cost common stock items like nuts and bolts. Notably, this resolution includes a few interesting points.
First, according to the press release, in conjunction with this resolution, the DOJ also agreed to settle a lawsuit filed by L3 Tech alleging breach of contract against the United States. There, L3 Tech alleged that the Department of Defense improperly prohibited L3 Tech from charging for other costs that it was rightfully entitled to under the relevant agreements. L3 Tech was able to recover almost $8 Million from the Government based on breach of contract and other allegations all while the Government was actively investigating the FCA allegations. That is a remarkable win for L3 Tech.
Second, according to the settlement agreement, L3 Tech paid $21,811,248 of which $14,939,211 was restitution, resulting in the Government obtaining approximately 1.5x the single damages amount. At first glance, this sort of departure from the traditional doubles multiplier seems odd given that there was no apparent admission noted in the press release. But, based on the complaint in L3 Tech’s separate breach of contract suit, it appears that L3 Tech actually self-disclosed the double-counting issue to the contracting officer at some point in 2011 after L3 Tech discovered it. In other words, L3 Tech allegedly acted in good faith and informed the contracting officer of the double counting issue—conduct that, as you know, the DOJ is strongly encouraging. Presumably, the 1.5 multiplier reflects L3 Tech’s good faith disclosure and the additional litigation risk associated with L3 Tech’s disclosure to the contracting officer.
Finally, what I find most interesting is the interplay between L3 Tech’s breach of contract case and the DOJ’s False Claims Act resolution. Here, L3 Tech argued that the Department of Defense violated both the underlying agreements and its implied covenant of good faith and fair dealing. In particular, the complaint notes that because the FAR required L3 Tech to comply with a cost accounting system, L3 Tech “had a reasonable expectation that the Government would competently administer [the cost accounting system] according to the procedures and requirements set forth in the FAR.” L3 Tech further argued that the contracting officer’s direction not to use a certain method called the material additive factor on future proposals submitted under the relevant agreements violated the FAR. In other words, L3 Tech artfully weaponized its rights under the FAR in order to recapture a significant amount of the monies due to it under the relevant agreements and reduce the DOJ’s recovery. This highlights a significant area of exposure for the Government in procurement cases. Given that these contracts generally span several years, the Government generally faces some litigation risk resulting from one of the contracting officers’ actions during the course of the contract. Sometimes the risk results from significant turnover at the Government within the contracting officer ranks, misconduct by the contracting officer, or simply that different contracting officers handle matters with varying levels of competence. That said, when facing a procurement FCA investigation, this is a plum area for companies to focus and poke holes in the Government’s theory of the conduct.
A link to the press release is provided here.