Custer Battles: Rolling Back the Frontiers of the False Claims Act

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Custer BattlesRolling Back the Frontiers of
the False Claims Act

• Brian A. HillMarch 2, 2006

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Custer Battles

• Case currently in trial in Alexandria, VA
• Opinion on Summary Judgment issued July 8, 2005
• Central IssueWere bills submitted by Custer
  Battles to the CPAclaims within the meaning of
  the FCA?

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Money UsedTo Pay Custer Battles

• Vested Funds
• Seized Funds
• DFI Funds

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What Is A Claim?

• Not defined before 1986
• 1986 Amendments definition of claim
• includes a request or demand for payment
  presented to a contractor, grantee, or other
  recipient if the United States Government
  provides any portion of the money or property
  which is requested or demanded.

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Plaintiffs Argument

• Claim includes any request for payment where
  the U.S. government provides any portion of the
  money requested or demanded.
• Even if the government is merely a custodian
  of the property, a request for that property
  triggers the FCA.
• Even if Seized Funds, Vested Funds, and DFI
  funds were Iraqi Funds -- so long as the United
  States administered these funds -- then Custer
  Battles may be held liable.

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Judge Ellis Reasoning

• Long history of precedent rejecting the
  argument that a claim includes a demand for
  money or property that does not belong to the
  government, but is merely in the governments
  possession.
• 1986 Amendment did not overturn the rule that a
  claim requires a request or demand for payment
  from government funds.
• Conclusion that a claim must involve the U.S.
  governments own money is consistent with every
  post-1986 decision to consider the definition of
  claim within the meaning of the FCA.

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Judge Ellis Holding

• Liability under the FCA requires a request or
  demand for payment that if paid would result in
  economic loss to the government fisc.
• I.e. a request for payment from government
  funds.
• Liability does not extend to cases where the
  government acts solely as a custodian, bailee, or
  administrator, merely holding or managing
  property for the benefit of a third party.

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Vested FundsUSG Funds

• Were at one time property belonging to the
  government of Iraq.
• Became the property of the United States when
  they were confiscated pursuant to Executive Order
  of the President of the United States.
• At that time, the President was at liberty to
  direct the use of these funds for any purpose in
  the interest of and for the benefit of the United
  States.

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Seized FundsUSG Funds

• Became the property of the United States under
  the international laws and usages of war when
  they were physically seized by Coalition Forces
• At that time, the government had the discretion
  to direct their expenditure in the best interests
  of the United States, whether to fund the
  reconstruction of Iraq or to facilitate military
  operations in furtherance of the occupation.

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DFI FundsNot USG Funds

• Never became U.S. government property.
• Represented proceeds of sales of Iraqi oil under
  a UN program, and were held in an account in the
  Federal Reserve Bank of New York.
• Although the CPA controlled the disbursement of
  DFI Funds for a time, that control alone was not
  enough to trigger FCA liability.
• CPA was merely a custodian, bailee, or
  administrator of a third-partys property.

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Summary ofCuster Battles Holding
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Other CPA Contracts

• Are there other pending sealed FCA actions?
• Will be important to follow the money used to pay
  the contract to determine if USG funds were used.

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Foreign Military Sales

• USG enters into agreements with foreign
  governments and international organizations for
  the sale of defense articles and services.
• USG enters into contracts with private
  contractors for defense articles and services.

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FMS Trust Fund

• DoD has a special U.S. Treasury Account to handle
  FMS transactions known as the FMS Trust Fund.
• Foreign governments deposit money into the FMS
  Trust Fund.
• FMS Trust Funds are paid to contractors pursuant
  to contracts with USG.

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Who Ownsthe FMS Trust Fund?

• The Comptroller General
• Amounts deposited into the FMS Trust Fund are,
  in reality, foreign customers funds that are
  administered by the United States Government only
  in a fiduciary capacity.

• Two District Courts
• Funds in the FMS Trust Fund are funds of the
  United States.
• Tax Court
• Funds in the FMS Trust Fund vest in the in
  the United States Government upon deposit
  therein.

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What Would Judge Ellis Say?(The One Hand)

• Possession, by itself, is not sufficient to
  trigger FCA liability- indeed, neither is
  possession and administration for the benefit of
  a third party.
• Possession plus the freedom to use or waste
  property for the government's own benefit is
  sufficient to establish ownership.
• Monies within the FMS Trust Fund may be utilized
  only to pay for FMS goods or services.
• FMS like DFI funds which could not be used or
  wasted to further the interests of the United
  States.

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What Would Judge Ellis Say?(The Other Hand)

• The plain meaning of the term vest is to
  transfer ownership or title.
• FMS Trust Funds vest in the government upon
  receipt.
• FMS similar to Vested Funds where title was
  transferred to USG at the time of seizure.

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DamagesThe Next Opinion?

• Were FCA liability to attach to a false claim
  presented to the United States for Iraqi funds
  merely in the governments possession, it is Iraq
  that would sustain the damages, not the United
  States.
• And even if the government could be said to have
  sustained the damage in some loose sense if
  it once possessed the funds but does no longer,
  to whom should the treble damages be paid?
• According to the statute, recovery would be paid
  to the government and to relators, but not to
  Iraq.