In U.S. ex rel. Foreman v. AECOM, the U.S. Court of Appeals for the Second Circuit confirmed that the materiality factors set forth by the Supreme Court in Universal Health Services, Inc. v. U.S. ex rel. Escobar apply to all types of False Claims Act claims and reinforced the relator’s heavy burden even at the pleading stage. This precedential opinion provides several key takeaways for defendants facing FCA liability where the significance of the allegations to the government’s payment decision is in doubt.
Foreman involved a contract to provide maintenance and management support services for the Army, including tactical vehicle and equipment maintenance, facilities management and maintenance, supply and inventory management, and transportation services. The alleged violations stemmed from the contractor submitting timesheets with improper labor hours, failing to properly log and track government property, and hitting a consistently low man-hour utilization (“MHU”) rate—the ratio of time personnel would spend actively engaged in maintenance projects. After the government declined to intervene, the district court dismissed the relator’s claims for failure to plausibly allege materiality.
On appeal, the Second Circuit largely affirmed the district court, while reversing only as to the allegations of labor overcharging due to the lower court’s improper reliance on a document not incorporated into the complaint. The Court’s discussion with respect to the other allegations provides important guidance as to the materiality analysis and the burdens that apply at the pleading stage.
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