United States: Personal Jurisdiction Over Foreign Subcontractors Under The False Claims Act

Two recent federal decisions highlight the prevailing standard for whether, under the False Claims Act, 31 U.S.C. § 3729 – 3733 ("FCA"), federal tribunals have personal jurisdiction over foreign subcontractors who exclusively do work abroad. In both cases, the subcontractor escaped FCA liability due to a lack of evidence that the defendant "purposefully availed" itself of the geographic (as opposed to governmental) United States.

Background

First Kuwaiti Trading Company ("FKT") was a Kuwaiti corporation and federal subcontractor to Kellogg, Brown & Root, Inc. ("KBR") in the Iraqi military theater. KBR submitted certified claims to the Government seeking equitable adjustment of over $48 million, part of which related to delays experienced by FKT in performing its work. After the Government paid KBR, the Defense Contract Audit Agency denounced the claims as unsupported, and the Government sued both KBR and FKT for violations of the FCA.

United States v. Kellogg, Brown & Root Servs., Inc., 2014 WL 4948136 (C.D. Ill. 2014)

The Court granted FKT's motion to dismiss the FCA claim for lack of personal jurisdiction. The Court analyzed jurisdiction under the "purposeful direction" test.1 According to the Court, the salient inquiry was whether FKT engaged in conduct that was: (1) intentional, (2) expressly aimed at the forum, and (3) performed with knowledge that its effects would be felt there. The Court held that it had no jurisdiction to decide FCA claims against a foreign subcontractor whose only tie to the judicial forum is a subcontract for services abroad:

As a foreign company conducting projects in foreign territory, First Kuwaiti is connected to the United States Government in this case only through a handful of correspondence, a single action by counsel retained for a specific unrelated purpose, and the independent actions of KBR—and then only to the Government itself and not the jurisdictional United States. Because the Government has additionally failed to plead the existence of a conspiracy between First Kuwaiti and KBR that would make First Kuwaiti derivatively subject to jurisdiction through KBR's American presence, the Court finds that it lacks specific personal jurisdiction over First Kuwaiti.

The Court rejected the Government's theory that the FCA creates a special jurisdictional connection between the United States and foreign subcontractors.

United States ex rel. Conyers v. KBR, 2015 WL 1510544 (C.D. Ill. 2015)

In March 2015, the Court granted another motion to dismiss for lack of personal jurisdiction filed by FKT in a separate FCA action ("KBR II"). In KBR II, the Government sued FKT under the FCA for its alleged involvement in various bribery schemes relating to KBR subcontracts for trucking and fuel in Iraq. The Government emphasized that KBR was also in violation of the Contract Disputes Act, 41 U.S.C. § 7103(c) by submitting a fraudulent certified claim in breach of a Government contract. The Government further posited that "because First Kuwaiti knew it would only get paid by KBR if KBR got paid on the claims it submitted to the United States, First Kuwaiti's actions were purposefully directed toward the United States (not just as the entity footing KBR's bill, but as a jurisdiction)."

The Court disagreed that submitting false claims through KBR would have a "bank shot" effect inside of the judicial forum. The Government's position relied heavily on e-mails and bids between KBR and FKT, which suggested that FKT was an active participant in a fraud against the United States Government. However, the Court dismissed the correspondence as irrelevant to the issue whether FKT expressly aimed its conduct toward the forum, holding: "the solicitations for subcontracts and allegedly inflated invoices were directed at KBR, not the United States. Because First Kuwaiti's conduct does not connect it with this forum in any meaningful way, the Court cannot exercise personal jurisdiction over First Kuwaiti."

Key Takeaways

The Court's refusal to exercise jurisdiction over FKT has significant ramifications for the future of FCA suits against foreign entities who have no ties to the geographic United States other than as out-of-country subcontractors. Most notably:

  • The Government must demonstrate that the foreign subcontractor "purposefully directed" its conduct toward the judicial forum where the suit is filed;
  • A foreign subcontractor's mere submission of false claims for payment and/or fraudulent statements to the general contractor do not alone constitute purposeful direction into the geographic United States;
  • Under the Kellogg, Brown & Root precedents, the Government will likely have to plead that the foreign subcontractor actively conspired with the general contractor in presenting a fraudulent claim to the United States.

Footnotes

1 Personal jurisdiction requires the plaintiff to show the defendant "purposefully availed itself of the privilege of conducting business in the forum state or purposefully directed his activities at the state." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985).

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