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Media Alerts - United States ex rel. Vavra v. Kellogg Brown & Root, Inc. - Fifth Circuit
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July 22, 2013
  United States ex rel. Vavra v. Kellogg Brown & Root, Inc. - Fifth Circuit
Headline: Fifth Circuit Rules that the Government Can Obtain Double Damages and Per-Occurrence Penalties Against Employers Based on Employees' Violations of the Anti-Kickback Act.

Area of Law: Anti-Kickback Act.

Issue Presented: Whether 41 U.S.C. § 55(a)(1) extends vicarious liability to an employer for the acts of its employees, and, if it does, whether the government's complaint sufficiently alleged such liability.

Brief Summary: Employees of Defendant-Appellee Kellogg Brown & Root, Inc. (KBR) allegedly accepted kickbacks from two companies angling to win subcontracts on KBR's prime contract to service American armed forces in military theaters across the globe. Intervenor-Appellant, the United States, seeks to hold KBR liable for the kickbacks under the Anti-Kickback Act (AKA), 41 U.S.C. §§ 51-58. The U.S. District Court for the Eastern District of Texas granted KBR's motion to dismiss, concluding that § 55(a)(1) does not provide for vicarious liability. The U.S. Court of Appeals for the Fifth Circuit reversed and remanded, holding that § 55(a)(1) does allow for vicarious liability and that the government in this case had sufficiently stated a claim.

Extended Summary: Allegedly, employees in KBR's transportation department accepted kickbacks (meals, drinks, golf outings, tickets to rodeo events, baseball games, football games, etc.) from counterparts in EGL and Panalpina (subcontractors of KBR). In return, EGL and Panalpina would obtain favorable treatment, such as being awarded new subcontracts despite faulty past performance. This civil action commenced when two private individuals brought a qui tam suit against KBR and individual employees for the kickback scheme. The government intervened in the case against KBR and filed its own complaint.

The U.S. District Court for the Eastern District of Texas granted KBR's motion to dismiss, concluding that § 55(a)(1) does not allow the government to allege vicarious liability. The District Court further noted that because the United States had not sufficiently alleged that KBR employees were acting for the corporation's benefit, imputation of vicarious liability is not appropriate in this case. The government appealed to the U.S. Court of Appeals for the Fifth Circuit.

The first issue before the Fifth Circuit was whether § 55(a)'s "recover from a person" language included business entities. The Fifth Circuit held that Congress defined "person" broadly in the AKA to include corporations and other business entities. Therefore, by § 55(a)'s plain terms, a corporate person, and not solely its individual employees, can be held liable under both subsections (a)(1) and (a)(2). Since § 55(a)(1) makes corporations liable for kickback activity, it requires attributing liability to corporate entities for that activity under a rule of vicarious liability. Congress's decision to provide for vicarious liability under both subsections does not render § 55(a)(2) superfluous, as argued by KBR. Under § 55(a)(1), the government must prove a "knowing[]" violation before it may obtain double damages and per-occurrence recoveries. Section 55(a)(2), which specifically refers to liability based on employees' conduct, requires no proof of "knowing" misconduct before allowing recovery of "a civil penalty equal to the amount of th[e] kickback."

The Fifth Circuit also explained that the AKA provision should not be read as providing for punitive damages, and that non-punitive federal statutes should generally be construed in harmony with the common law "apparent authority" rule for attributing vicarious liability unless Congress signals its intent to adopt a different approach. Therefore, rejecting KBR's arguments, the Fifth Circuit held that the common law rules of vicarious liability apply to the AKA, there is no heightened proof requirement, apparent authority is enough to hold an employer vicariously liable, and that the government has sufficiently stated a claim.

Accordingly, the Fifth Circuit reversed and remanded, holding that § 55(a)(1) does allow for vicarious liability and that the government has clearly stated a claim.

Judge Jolly's opinion concurring in the judgment agreed that a remand was proper but emphasized that § 55(a)(1) requires that the defendant act "knowingly." In his view, the majority did not give sufficient attention to that limitation and thus failed to provide the district court with adequate guidance for the proceedings on remand.

For the full opinion, please see:
http://www.ca5.uscourts.gov/op...2/12-40447-CV0.wpd.pdf.

Panel: Circuit Judges Jolly, Benavides, and Higginson

Argument Date: 12/04/2012

Date of Issued Opinion: 07/19/2013

Docket Number: No. 12-40447

Decided: Reversed and remanded

Case Alert Author: Kirsty Davis

Counsel: Melissa Nicole Patterson, U.S. Department of Justice, for Intervenor - Appellant United States; Marie Roach Yeates, Vinson & Elkins, L.L.P., for Defendant-Appellee Kellogg Brown & Root.

Author of Opinion: Judge Higginson (Judge Jolly concurring in the judgment)

Case Alert Circuit Supervisor: Aaron-Andrew P. Bruhl

    Posted By: Aaron Bruhl @ 07/22/2013 09:41 PM     5th Circuit  

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