United States, ex rel. Thomas A. Berg, et al. v. Honeywell International, Inc., et al.

Although fraud-in-the-inducement taints all subsequent payments, belated discovery of the truth can leave the Government with no practical choice but to continue with the tainted contract. In this False Claims Act (FCA) case, an Energy Savings Performance Contract (ESPC) project’s concealed inability to meet mandatory statutory requirements for a true guarantee of aggregate post-project utility cost savings left the United States Army in just such a dilemma. However, in purported reliance upon Universal Health Services, Inc. v. U.S. ex rel. Escobar, 579 U.S. ___, 136 S.Ct. 1989, 2003 (2016), the Ninth Circuit Court of Appeals declined to address noncompliance with these core legal requirements of the ESPC statute, 42 U.S.C. § 8287, et seq., and instead applied common law principles and the judicially created “government knowledge” concept to uphold summary judgment.

1. Are guaranteed “savings” which will actually result in higher aggregate utility costs true “savings” under 42 U.S.C. § 8287(a)(2)(B)?

2. Is the mere existence of evidence of “government knowledge” sufficient to “negate” FCA falsity, materiality or scienter, or is the relevance of such evidence subject to the established evidentiary rules which govern reasonable inferences?

3. Did the appellate court short-circuit the FCA’s tripartite statutory scienter analysis in its resort to the “government knowledge” concept?