Kickbacks Case Against KBR Revived by Court

     (CN) – Defense contractor KBR must face claims that its employees took kickbacks while shipping military equipment to Iraq and Afghanistan, the 5th Circuit ruled.
     Under a 2001 logistics agreement, the U.S. Army had given KBR, a former Halliburton subsidiary previously known as Kellogg Brown & Root, discrete tasks to fulfill, which it could do on its own or by hiring subcontractors.
     KBR hired two subcontractors, EGL and Panalpina, to carry out its task of transporting military equipment and supplies to Iraq, Afghanistan and Kuwait between 2002 and 2006.
     The government later accused KBR employees of accepting kickbacks from EGL and Panalpina to “obtain favorable treatment on … subcontracts with KBR, such as overlooking service failures and continuing to award new subcontracts … despite such failures.”
     The subcontractors allegedly provided the KBR manager in charge of the Army contract, Robert Bennett, and others with meals, drinks, golf trips, tickets to sports events and other gifts. Bennett and one other employee pleaded guilty to criminal charges related to the kickbacks.
     Two private individuals initially brought the False Claims Act complaint KBR as a qui tam action, and the government intervened, but a federal judge in Texas dismissed the case, reasoning that the Anti-Kickback Act does not support claims based on vicarious liability.
     In reversing that holding Friday, the 5th Circuit gave an in-depth analysis of the Anti-Kickback Act, or AKA.
     “The District Court’s reading gives individual expression to both AKA subsections (a)(1) and (a)(2), but it insufficiently accounts for the fact that both of § 55(a)’s subsections allow the government to ‘recover from a person,'” Judge Stephen Higginson wrote for the three-judge panel. “Congress defined ‘person’ broadly in the AKA, to include corporations and other business entities. By § 55(a)’s plain terms, a corporate person, and not solely its individual employees, can be held liable under both subsections (a)(1) and (a)(2).”
     Going one step further, the court found that the government need not establish KBR’s employees acted with an intent to benefit KBR.
     “We discern no persuasive evidence of congressional intent in § 55(a) to vary from the common law norm of permitting vicarious liability for employee actions taken under apparent authority,” Higginson said.
     KBR failed to show that the Anti-Kickback Act, which provides that the government may penalize the guilty party $11,000 for each kickback, essentially levies punitive damages because the company may face penalties greater than the value of the kickbacks.
     “The Supreme Court emphasized the insufficiency of recovering the simple, estimated dollar value of a kickback to fully compensate the government for its kickback-related losses,” the court said.
     The high court also “has observed that while the treble damages and civil forfeitures provisions in the FCA may be punitive in some respects, ‘[t]reble damages certainly do not equate with classic punitive damages, which leave the jury with open-ended discretion over the amount,'” Higginson wrote, abbreviating False Claims Act. “We decline to apply law crafted in the context of punitive damages provisions to alter the generally applicable common law rules for a non-punitive damages law like the AKA.”

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