US Court of Federal Claims Clarifies the Statute of Limitations for CDA Anti-Fraud Claims

While most federal contractors are eminently familiar with the False Claims Act ("FCA")—government’s most potent weapons for prosecuting false claims—the anti-fraud provision of the Contract Disputes Act ("CDA") does not receive nearly as much attention in the headlines. CDA anti-fraud cases are rarer than FCA cases for a couple reasons. First, the government’s remedies under the CDA pale in comparison to the robust deterrents available under the FCA, which include five-figure fines (between $11,000 and $22,000 per claim) and potential treble damages.[1] Second, the government is limited to enforcing FCA fraud claims in the federal court system, which complicates matters when the government seeks to assert FCA counterclaims as leverage in cases pending in the Civilian Board of Contract Appeals or the Armed Services Board of Contract Appeals.[2]  Thus, case law addressing CDA anti-fraud claims is sparse; indeed the US Court of Appeals for the Federal Circuit has never issued a published opinion discussing such claims. Last month, however, emerged an anti-fraud decision in the US Court of Federal Claims ("COFC") that may eventually find itself worthy of higher-level scrutiny. 

CDA fraud claims and statute of limitations

Under Section 7103(c) of the CDA, a contractor asserting claims arising out of a “misrepresentation of fact or fraud” is liable to the government for the portion of the claim that is unsupportable due to the misrepresentation or fraud.[3] The contractor is further responsible for paying the costs incurred by the government to review the baseless or fraudulent claim. Unlike the FCA, the CDA does not provide for flat monetary penalties per offense; rather, the contractor’s liability is directly proportionate to the portion of the claim attributable to misrepresentation or fraud. And unlike the FCA, the government may not assert treble damages against the contractor. Moreover, the CDA does not have a criminal component or give rise to potential jail time for individual corporate officers found to have been implicated in corporate fraud. 

Section 7103(c) of the CDA provides: “Liability under this paragraph shall be determined within 6 years of the commission of the misrepresentation of fact or fraud.”[4] However, the statute does not specify what a “determination” of liability entails, who must make such a “determination,” or when such a “determination” becomes final such as to accrue the limitations period. The holding in Lodge Construction, Inc. v. United States lends further insight into just what that limitation means and how it will be construed moving forward.[5]

The facts in Lodge Construction[6]

In 2010, the Army Corps of Engineers (“Government”) awarded Lodge Construction, Inc. (“Lodge”) a fixed-price contract to rehabilitate a levee in Florida. To accommodate performance of subsurface work, Lodge designed and constructed a temporary cofferdam, using  a subsurface geotechnical site inspection and analysis furnished by the Government. The Government accepted Lodge’s final cofferdam design in July 2011, and Lodge began work soon thereafter. In March 2012, however, water breached two sections of the cofferdam’s sheet pile wall, after which the Government retroactively disapproved of Lodge’s cofferdam design.

After the sheet wall failed, the Government requested that Lodge submit a new sheet pile design by May 29, 2012. Instead, Lodge submitted two certified claims to the Contracting Officer: the first of which challenged the retroactive disapproval of its sheet pile design, the second of which sought compensation for labor and equipment costs attributable to the failed sheet pile wall and resultant delays. Citing Lodge's failure to produce a new cofferdam design or otherwise make progress toward completing the project by the contractual deadline, the Government denied Lodge’s claims and then terminated Lodge for default. Lodge brought suit in the COFC seeking compensation for its claims and conversion of its termination for default into a termination for convenience. The Government asserted several fraud counterclaims, contending that Lodge: (1) submitted false claims for delay damages; (2) double-billed and exaggerated its equipment costs; and (3) improperly passed-through claims of a subcontractor.  

The arguments in Lodge Construction

After two years of discovery, Lodge moved for summary judgment on the basis that the Government’s fraud claims were time-barred under the CDA’s 6-year limitations period. According to Lodge, the statute of limitations began to run as soon as Lodge submitted its certified claim in 2012. Lodge observed that, in the 6-year period between the claim and the motion, no court had ever “determined” Lodge’s fraud liability. Thus, Lodge claimed, the statute of limitations had expired with respect to the Government’s fraud claims.[7]

The Government argued that Section 7103(c)(2) of the CDA only began to run upon the US Department of Justice’s “determination” that there was fraud liability. As read by the Government, the court was required to impose the “discovery rule,” which triggers the limitations period only after the Government knew or should have discovered the alleged fraud. In the alternative, the Government posited that the doctrine of equitable tolling warranted an extension of the limitations period against Lodge.

The holding in Lodge Construction

The holding of Lodge was an unmitigated victory for the contractor. Rejecting all of the Government’s arguments, the court held that the 6-year limitations period accrues (or begins) as soon as the alleged fraud is committed. 

Relying on US Supreme Court cases rejecting application of the discovery rule, the court emphasized that the CDA anti-fraud provision is a civil penalty which, arising out of statute, accrues as soon as the fraud is committed by the contractor.[8] Thus, the “six-year clock begins ticking when the fraud occurs, not when the Government discovers it.”[9] 

The court also disposed of the Government’s plea for application of the equitable tolling doctrine, which otherwise pauses or tolls the statute of limitations “when a litigant has pursued his rights diligently but some extraordinary circumstance prevents him from bringing a timely action.” The court ruled that the Government had failed to establish any of the three extraordinary circumstances for application of the equitable tolling doctrine, which include: (1) a defective pleading filed during the statutory period; (2) the claimant was induced or tricked by the other party’s misconduct into allowing the filing deadline to pass; or (3) the claimant’s injury was inherently unknowable.[10]

The court then turned to the perceived ambiguity in the statute concerning whether, and who, must make the “determination” of fraud within the 6-year limitations period. The court noted that two competing arguments of the parties; namely, whether it is the Department of Justice or the court who must make the “determination.” While noting disparity between prior decisions addressing the issue, the court elected to apply the plain language of the text. Interpreting the “plain and ordinary meaning” of the statute, the court held that the term “shall be determined” was more naturally read to implicate a binding court finding that a fraud occurred. On this point, the court expressly rejected the Government’s contention that the fraud claim was timely as long as the action was filed by the Department of Justice within the 6 year period.  

The court noted that, while the Government may “allege, claim or assert liability,” it is only the court who may “determine” liability—if this were not the case, there would be no need for court adjudication of the matter. Thus, because Lodge submitted its claims in June 2012, that conduct, even if fraudulent as alleged by the Government, fell outside of the 6-year statute of limitations. As a last ditch argument, the Government claimed that Lodge’s continued maintenance of its pass-through claims in this court were still within the 6 year limitations period. However, the court ruled based on prior precedent that a complaint filed in this court cannot service as a basis for liability under the CDA because it is not submitted to a contracting officer.

Key takeaways

While a victory for Lodge, the Lodge decision will have potential ramifications that are not particularly favorable to contractors in the future. As a direct result of the decision, contracting agencies are more likely to be sensitized to the need to raise fraud earlier in the dispute, so as not to risk forfeiture of the CDA anti-fraud remedy. This may lead to hyper-aggressive allegations of fraud and referral to the Department of Justice more often, and much earlier, than in the past. In the meantime, the statute of the limitations period will likely be subject to legislative or judicial mutability. In response to the decision, we may see Congress modify the language of Section 7103(c) in order to allow the government more time to file its fraud claims. In the alternative, an appeal to the US Court of Appeals for the Federal Circuit could leave contractors and the government guessing as to which rule applies to their case. In either scenario, the final rule is likely to remain unclear while the policy choices run the gamut of the democratic process.

 

[1] 31 U.S.C. § 3729(a).

[2]  31 U.S.C. § 3732(a); 41 U.S.C. 7103(c)(1). Decisions in recent years have somewhat extended board jurisdiction over fraud claims. For instance, where the government raises an affirmative defense that a contract is void based on fraud that occurs during contract formation, the board may be permitted to make factual findings of fraud. See ESA S., Inc., ASBCA No. 62242, 20-1 BCA ¶37647 (Jun. 9, 2020) (mere allegation of fraud by the government did not deprive the board of jurisdiction where factual finding of fraud was not necessary to determining the appeal). However, when the government asserts an affirmative defense alleging that fraud occurred during contract performance, the Board may not make the factual determination of fraud—those factual findings may only be made by a federal court.

[3] 41 U.S.C. § 7103(c)(2).

[4] 41 U.S.C. § 7103(c)(2).

[5] Lodge Constr., Inc. v. United States, No. 13-499, 2021 WL 1418847 (Fed. Cl. Apr. 14, 2021).

[6] Id.

[7] 2021 WL 1418847, at *3.

[8] 2021 WL 1418847, at *4. Specifically, the court relied upon Gabelli v. S.E.C., where the US Supreme Court held that claims for fraud under the federal Investment Advisors Act accrue as soon the fraud occurs, as opposed to when the fraud is discovered. 568 U.S. 442 (2013).

[9] 2021 WL 1418847, at *4.

[10] See Crawley v. United States, 145 Fed. Cl. 446, 452 (2019).