In the Courts

Fifth Circuit Clarifies the Scope of the Anti-Kickback Act

On Feb. 3, the U.S. Court of Appeals for the Fifth Circuit partially reversed an Eastern District of Texas ruling finding that two employees of Kellogg Brown & Root, Inc. (KBR) acted on behalf of the company in accepting kickbacks for subcontract work on a United States Army contract. The published opinion of the panel of three judges stated that while Robert Bennett's behavior could be imputed to KBR under the Anti-Kickback statute, his son, James Bennett, did not have the appropriate level of managerial control to hold his employer liable for his behavior.

KBR was awarded a contract with the Army to provide logistical support during its operations. KBR would sometimes hire subcontractors to fulfill its work orders from the Army. It was one of these subcontractors, EGL, Inc. (EGL), that allegedly provided gratuities to Robert and James during the time they were employees at KBR. While KBR argued that the $5,000 the subcontractors spent was simply for general relationship building, the government successfully argued that the entertainment and food the KBR employees received from EGL was a bribe meant to influence KBR's treatment of the subcontractor.

The “Anti-Kickback Act,” 41 U.S.C. §§ 8701-07, is meant, in part, to prevent the government from paying for any improper kickbacks related to its contracts. A kickback is defined as “any … thing of value” that is given to a contractor to influence his behavior in favor of the company providing the kickback. The panel emphasized that there is no quid pro quo requirement in the Anti-Kickback Act, and rejected KBR's argument that the statute needs to be read narrowly to encompass one. The court took a much broader reading of the statute, and held that the favorable treatment afforded a company based on a kickback payment does not need to be “specific, identifiable treatment” for the statute to apply, but rather can also cover “generalized” favorable actions. The panel further explained that general spending for building goodwill alone will not typically trigger the Anti-Kickback Act, but that payments made to influence a company to give “improper favorable treatment” to another company will.

In this case, the government argued that KBR had violated § 8706(a)(1), which prohibits a person from providing, soliciting, or accepting kickbacks and from incorporating the kickback value into a contract between the subcontractor and contractor, or in a contract between a contractor and the federal government. Each violation under this provision allows for the government to recover double the value of the kickback plus $11,000, but in order to do so the government must prove that the individual, or company, “knowingly” violated the law by participating in the kickback plan.

While neither Robert, who since has passed away, nor James were executives at the company, the court found that Robert had an appropriate amount of supervisory control and responsibility over the EGL subcontract to impute his knowledge to KBR. Robert was responsible for monitoring the daily operations of EGL, communicating with the company, reviewing invoices for payment, and generally supervising EGL's performance. Furthermore, the employers from EGL who provided the kickbacks stated that they did so in part because Robert would reach out to the company to bring up issues regarding the contract work before they created serious problems for EGL. In light of its ruling that generalized favorable treatment alone is sufficient to trigger the Anti-Kickback Act, the court found that Robert's behavior could make KBR liable for violating the statute.

However, the panel reversed the district court's finding as to James, holding that he lacked supervisory authority over the contract after it had been granted for his knowledge to be imputed to his employer. The panel found that his responsibility over the subcontractor ended after the original contract was awarded to EGL, and that his lack of responsibility over the subcontractor during the time the kickbacks were paid meant that his knowledge could not be imputed to KBR.

The Fifth Circuit panel remanded to the lower court to make a decision in accordance with its ruling. The district court must now recalculate the $108,000 civil fine it originally awarded the government based on improper payments made to both Robert and James to cover only improper payments made to Robert.

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In the Courts and Business Crimes Hotline were written by Katherine Monks, an associate at Mayer Brown, Washington, DC.

Fifth Circuit Clarifies the Scope of the Anti-Kickback Act

On Feb. 3, the U.S. Court of Appeals for the Fifth Circuit partially reversed an Eastern District of Texas ruling finding that two employees of Kellogg Brown & Root, Inc. (KBR) acted on behalf of the company in accepting kickbacks for subcontract work on a United States Army contract. The published opinion of the panel of three judges stated that while Robert Bennett's behavior could be imputed to KBR under the Anti-Kickback statute, his son, James Bennett, did not have the appropriate level of managerial control to hold his employer liable for his behavior.

KBR was awarded a contract with the Army to provide logistical support during its operations. KBR would sometimes hire subcontractors to fulfill its work orders from the Army. It was one of these subcontractors, EGL, Inc. (EGL), that allegedly provided gratuities to Robert and James during the time they were employees at KBR. While KBR argued that the $5,000 the subcontractors spent was simply for general relationship building, the government successfully argued that the entertainment and food the KBR employees received from EGL was a bribe meant to influence KBR's treatment of the subcontractor.

The “Anti-Kickback Act,” 41 U.S.C. §§ 8701-07, is meant, in part, to prevent the government from paying for any improper kickbacks related to its contracts. A kickback is defined as “any … thing of value” that is given to a contractor to influence his behavior in favor of the company providing the kickback. The panel emphasized that there is no quid pro quo requirement in the Anti-Kickback Act, and rejected KBR's argument that the statute needs to be read narrowly to encompass one. The court took a much broader reading of the statute, and held that the favorable treatment afforded a company based on a kickback payment does not need to be “specific, identifiable treatment” for the statute to apply, but rather can also cover “generalized” favorable actions. The panel further explained that general spending for building goodwill alone will not typically trigger the Anti-Kickback Act, but that payments made to influence a company to give “improper favorable treatment” to another company will.

In this case, the government argued that KBR had violated § 8706(a)(1), which prohibits a person from providing, soliciting, or accepting kickbacks and from incorporating the kickback value into a contract between the subcontractor and contractor, or in a contract between a contractor and the federal government. Each violation under this provision allows for the government to recover double the value of the kickback plus $11,000, but in order to do so the government must prove that the individual, or company, “knowingly” violated the law by participating in the kickback plan.

While neither Robert, who since has passed away, nor James were executives at the company, the court found that Robert had an appropriate amount of supervisory control and responsibility over the EGL subcontract to impute his knowledge to KBR. Robert was responsible for monitoring the daily operations of EGL, communicating with the company, reviewing invoices for payment, and generally supervising EGL's performance. Furthermore, the employers from EGL who provided the kickbacks stated that they did so in part because Robert would reach out to the company to bring up issues regarding the contract work before they created serious problems for EGL. In light of its ruling that generalized favorable treatment alone is sufficient to trigger the Anti-Kickback Act, the court found that Robert's behavior could make KBR liable for violating the statute.

However, the panel reversed the district court's finding as to James, holding that he lacked supervisory authority over the contract after it had been granted for his knowledge to be imputed to his employer. The panel found that his responsibility over the subcontractor ended after the original contract was awarded to EGL, and that his lack of responsibility over the subcontractor during the time the kickbacks were paid meant that his knowledge could not be imputed to KBR.

The Fifth Circuit panel remanded to the lower court to make a decision in accordance with its ruling. The district court must now recalculate the $108,000 civil fine it originally awarded the government based on improper payments made to both Robert and James to cover only improper payments made to Robert.

*****
In the Courts and Business Crimes Hotline were written by Katherine Monks, an associate at Mayer Brown, Washington, DC.