,
Jennifer M. O'Connor 
,
Jonathan G. Cedarbaum ,
Carl J. Nichols ,
Joe D. Smith
Gregory Petkoff ,
Natalie Hirt Adams and
Carla J. Weiss .On January 17, 2012, the Court of Federal Claims (COFC) issued a
decision clarifying that, if a contractor invokes the jurisdiction
of the COFC (an Article I court) to pursue its claims, the
contractor has no right to a jury trial on any fraud-based
counterclaims, including False Claims Act (FCA) counterclaims, but
must defend such counterclaims in the proceeding before a trial
judge. Ry. Logistics Int'l v. United States, __
Fed.Cl. __, 2012 WL 171895 (Jan. 17, 2012). This case illustrates
one way in which forum selection can adversely affect a contractor
litigating claims against the Government. Below is a summary of the
Railway Logistics decision along with some additional
observations about the benefits and drawbacks of forum selection in
proceedings against the United States.
Summary of the Decision
Railway Logistics International (RLI) brought suit in the COFC on
claims arising from the termination of its contract to provide
goods necessary to rehabilitate the Iraqi Republic Railway. The
Government filed counterclaims alleging that RLI had not only
failed to perform adequately under the contract, but had also
grossly inflated its claim for an equitable adjustment upon
termination of the contract. The Government sought damages under
both the Contract Disputes Act (CDA), 41 U.S.C. §§7101
et seq., and the FCA, 31 U.S.C. §§3729 et
seq., as well as forfeiture of RLI's breach claim under
the Forfeiture of Fraudulent Claims Act, 28 U.S.C.
§2514.
RLI argued that the COFC lacked jurisdiction to hear the
Government's counterclaims. RLI contended that, because the
counterclaims were based on allegations of fraud, the Seventh
Amendment guaranteed RLI the right to try them before a jury (an
option that is not available in the COFC). The COFC ruled for the
Government, holding that the Seventh Amendment does not protect
plaintiffs who exercise their right to sue the Government in an
Article I court from countersuits by the Government in the same
court. The COFC relied in large part on a 1990 Federal Circuit
decision, Seaboard Lumber Co. v. United States, 903 F.2d
1560 (Fed Cir. 1990), which in turn relied on a nineteenth-century
Supreme Court decision, McElrath v. United States, 102
U.S. 426 (1880).
Implications
Under the CDA, government contractors have the right to a de
novo trial on claims denied by a contracting officer. The CDA
permits the contractor to appeal the denial of its claim to either
the COFC or a Board of Contract Appeals (BCA or Boards). As the
Railway Logistics decision demonstrates, this choice may
have unintended or unforeseen consequences for contractors.
While the holding in Railway Logistics relates
specifically to whether there is a right to a jury trial on fraud
counterclaims brought by the Government in proceedings before an
Article I court, the decision demonstrates the potential prejudice
to contractors if the Government can bring a counterclaim alleging
fraud within the confines of CDA litigation. The Railway
Logistics decision makes it clear that, once contractors have
elected to litigate their claims at the COFC, they have effectively
waived the right to a jury trial for counterclaims under the
FCA.
If a contractor elects to pursue its appeal at a BCA, the
Government cannot assert an FCA-based counterclaim, as the Boards
have no jurisdiction over claims or counterclaims based on
allegations of fraud. Instead, the Government would have to bring
the FCA case in another forum where the contractor could demand a
jury trial, a right guaranteed by the Seventh Amendment. Since
Boards lack jurisdiction over counterclaims based on allegations of
fraud, they generally stay proceedings on the contractor's
affirmative claims pending resolution of fraud issues in another
forum.
In practice, it appears that appeals brought in the COFC are very
closely scrutinized for potential fraud-based counterclaims, since
it is relatively simple for the Government to bring such
counterclaims in the pending litigation, whereas appeals brought in
a BCA require the Government to file an FCA lawsuit in a separate
action and in a different forum.
In either case, counsel contemplating the appeal of an adverse
contracting officer's decision on a claim should ascertain
whether any part of the claim may be tainted by fraud. The
Government can—and likely will—assert that a
claim is tainted by fraud whenever evidence is not produced to
support some aspect of the claim, such as inflated estimates of
equitable adjustment damages. If there is any concern that the
original claim was arguably tainted by fraud, the claim should be
revised and recertified to eliminate any such taint. While removing
the taint of fraud from an existing claim reduces the likelihood of
the Government filing a complaint or counterclaim under the FCA,
there is still a chance that it could allege that the claim as
originally filed was fraudulent. Therefore, counsel should ensure
that evidence exists to support every aspect of a claim before
presenting it to the contracting officer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
