                                                                               FILED
                                                                   United States Court of Appeals
                                     PUBLISH                               Tenth Circuit

                     UNITED STATES COURT OF APPEALS                        April 22, 2016

                                                                        Elisabeth A. Shumaker
                            FOR THE TENTH CIRCUIT                           Clerk of Court
                        _________________________________

UNITED STATES OF AMERICA ex rel.
KEVIN THOMAS; CAROLYN
THOMAS,

     Plaintiffs - Appellants,

v.                                                        No. 15-3155

BLACK & VEATCH SPECIAL
PROJECTS CORP.,

     Defendant - Appellee.
                     _________________________________

                    Appeal from the United States District Court
                             for the District of Kansas
                         (D.C. No. 2:11-CV-02475-DDC)
                      _________________________________

Jason M. Hans (Kirk T. May with him on the briefs), Rouse Hendricks German May PC,
Kansas City, Missouri, for Plaintiffs-Appellants Kevin and Carolyn Thomas.

Nathan F. Garrett (Kathleen A. Fisher with him on the brief), Graves Garrett LLC,
Kansas City, Missouri, for Defendant-Appellee Black & Veatch Special Projects Corp.
                        _________________________________

Before HARTZ, PHILLIPS, and McHUGH, Circuit Judges.
                  _________________________________

McHUGH, Circuit Judge.
                    _________________________________
     Kevin and Carolyn Thomas (Relators) filed this qui tam action against their

former employer, Black & Veatch Special Projects Corporation (BVSPC), alleging

violations of the False Claims Act, 31 U.S.C. §§ 3729–3733. Relators claim BVSPC

altered documents to obtain visas and work permits from the Afghan government and

then falsely certified it had complied with applicable laws to obtain payment under

its contract with the United States Agency for International Development (USAID).

The district court granted BVSPC’s motion for summary judgment, concluding

Relators could not prove any alleged false certification was material to USAID’s

decision to pay BVSPC. The district court also determined Relators could not prove

damages. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm.

                               I.   BACKGROUND

                                A. Factual History

      BVSPC is an engineering, consulting, and construction firm based in Overland

Park, Kansas. In December 2010, USAID awarded BVSPC Contract No. 306-C-00-

11-00506-00 (the Contract), which related to the Kandahar Helmand Power Project

(the Project) in Kandahar, Afghanistan. The purpose of the Project was “to increase

the supply, quantity, and distribution of electrical power from Afghanistan’s South

East Power System (SEPS)” with “[p]articular emphasis . . . given to the City of

Kandahar.”

      Under the Contract, BVSPC agreed to complete six deliverable components of

the Project, including thirteen subcomponents, and to “provide all engineering,

procurement, construction, and other material, equipment and/or services necessary

                                          2
to complete and successfully commission each of the six components in accordance

with the requirements of this [C]ontract.” The Contract required BVSPC to submit

invoices every two weeks and required USAID to pay within fourteen days “after

receipt of a proper invoice.” After final completion and acceptance, and “[u]pon

compliance by [BVSPC] with all the provisions of [the Contract],” USAID was also

required to “promptly pay to [BVSPC] any moneys . . . due.” The payment-approval

process required BVSPC’s Chief of Party to coordinate with USAID’s Contracting

Officer and the Contracting Officer’s Technical Representative (Technical

Representative).

      At the time BVSPC moved for summary judgment on December 23, 2014,

USAID had issued notices of final completion and acceptance on ten of the

Contract’s deliverable subcomponents. Similar notices were currently pending for the

three remaining subcomponents.

      Relators Kevin and Carolyn Thomas worked for BVSPC in Afghanistan from

April 18, 2011, until they resigned on July 2, 2011. The events leading to their

resignation began on June 25, 2011, when Mr. Thomas discovered educational

documents that had been altered to replace the correct names with the names of seven

BVSPC employees, including Mr. Thomas. Mr. Thomas found the documents on a

shared network drive using a computer identified as “LighteningBug 1A,” which was

located in BVSPC’s human-resources office and accessible by all BVSPC employees.

Immediately after finding the documents, Mr. Thomas reported the discovery to

BVSPC’s acting Chief of Party, Lynn Liikala-Seymore.

                                           3
      Two days later, on June 27, 2011, Mr. Thomas contacted the USAID Office of

Inspector General (OIG) and gave OIG copies of the altered documents. On June 29,

2011, Carolyn Thomas met with OIG, provided additional copies of the documents,

and described how they had been found. According to Ms. Thomas, OIG was “not

that interested in the case.” Indeed, OIG personnel stated the documents were an

issue between BVSPC and the Afghan government and expressed interest only to the

extent BVSPC was “using these forgeries to get more money out of USAID.”

      Ms. Liikala-Seymore also met with OIG on June 29, 2011. At the meeting,

“OIG had copies of apparently altered educational documents and was aware of the

Thomases’ allegations regarding the forged documents.” Ms. Liikala-Seymore and

OIG also discussed the BVSPC human-resources personnel working on the Project.

In late June or early July 2011, Ms. Liikala-Seymore spoke with USAID’s Technical

Representative, Tom Bauhan, regarding the altered documents.1


      1
        Relators objected to a declaration from Mr. Bauhan, arguing he is not
authorized to speak on behalf of USAID. Before the district court, BVSPC made
conclusory arguments that Mr. Bauhan had such authority but did not provide any
legal support for its position. For the first time on appeal, BVSPC identifies and
analyzes regulations it claims authorize Mr. Bauhan to speak for USAID. Because
these arguments were not raised in the district court, we do not consider them. See
McDonald v. Kinder-Morgan, Inc., 287 F.3d 992, 999 (10th Cir. 2002) (“[A]bsent
extraordinary circumstances, we will not consider arguments raised for the first time
on appeal.”).
       But most of Mr. Bauhan’s testimony is factual and based on his personal
knowledge. Thus, even if we assume he cannot bind USAID to an official position,
Mr. Bauhan’s factual statements based on his personal knowledge as Technical
Representative for the Project are properly before us. See Fed. R. Evid. 602.
Moreover, much of Mr. Bauhan’s factual testimony was confirmed by other,
undisputed evidence. For example, Ms. Liikala-Seymore testified to her
communications with Mr. Bauhan, and Relators did not object to her testimony.
                                          4
      In addition, BVSPC instigated an investigation “to determine (a) who created

the altered diploma documents and (b) whether the altered documents had been

submitted to the Afghan[] government during the work permit and visa application

process.” On June 30, 2011, BVSPC human-resources personnel held an exit

interview with Khalid Afridi, a former employee who had worked primarily on the

computer identified as LighteningBug 1A. During his exit interview, Mr. Afridi was

questioned about the altered documents, but he denied responsibility and asserted he

did not have the necessary software to make the alterations. Mr. Afridi suggested

another employee may have tried to “set him up” because they did not like each

other. On July 16, 2011, Ms. Liikala-Seymore sent OIG a memorandum describing

Mr. Afridi’s exit interview. On at least three occasions, BVSPC attempted to obtain

copies of the documents filed with the Afghan government, to determine whether the

altered documents had actually been submitted to the relevant ministries.2 The

Afghan government did not provide copies of the requested documents. USAID and

OIG were similarly unsuccessful in obtaining copies of the relevant documents from

Accordingly, we consider Mr. Bauhan’s testimony based on his personal knowledge
and facts established by independent evidence, but disregard his opinions regarding
the significance of Relators’ allegations to USAID’s payment decisions.
       Relators also object to a declaration from USAID Contracting Officer Alvera
Reichert because BVSPC failed to disclose her as a witness under Rule 26(a) of the
Federal Rules of Civil Procedure. We do not decide whether the district court
properly admitted Ms. Reichert’s testimony because we do not rely on it in reaching
our conclusions.
      2
       Relators cited evidence of a fourth attempt where BVSPC personnel
personally visited the ministries to review documents submitted to the Afghan
government. According to Relators, the BVSPC representatives “were able to review
what had been submitted and no forged diplomas were found.”
                                          5
the Afghan government. At OIG’s direction, BVSPC ceased its efforts to get the

application packets from the Afghan government.

      Relators dispute whether BVSPC initially had hard copies of the altered

documents in its employee files. BVSPC’s human resources manager, Mark

Whitehouse, testified that a copy of each application packet would have been made

before submission to the Afghan government. But BVSPC was unable to locate

copies of the documents actually submitted in its files, and informed USAID that it

had not maintained organized records of the education documents filed with the

Afghan government.

      In a further effort to discover the source of the altered documents, BVSPC

hired Hewlett-Packard (HP) to perform a forensic analysis of certain BVSPC

computers. Although Relators dispute whether all relevant computers were included

in the forensic analysis, HP’s analysis indicated that several altered documents were

created on LighteningBug 1A. BVSPC summarized the forensic findings in an email

to OIG:

      We have completed the forensic analysis on the computers sequestered
      that include the BVSPC issued computers for the Thomas[es] as well as
      the “walk-up” computer provided by USAID [LighteningBug 1A]. The
      Thomas computers appear clean from any pejorative acts regarding
      falsifying documents; however, we are unable to acquire and check their
      own personal computers. The USAID computer, however, did include
      falsified and altered accreditations for a few personnel. Some were
      actually modified on the computer and others were placed on the
      computer already modified, most probably by using a flash-drive. The
      analysis was not conclusive as to who may have altered or added data
      since there was one universal password that allowed virtually anyone to
      use the computer.


                                          6
BVSPC then arranged a conference call during which HP discussed its analysis with

OIG and BVSPC gave OIG a copy of the HP report. After HP completed its

evaluation, BVSPC turned over the examined computers to OIG, along with chain-of-

custody records for each device.

      Simultaneously with its investigation, BVSPC attempted to locate and remove

all copies of the altered documents from its files to ensure they were not commingled

with other documents. Notwithstanding these efforts, in May and September 2012,

BVSPC inadvertently filed altered documents as part of work-permit-renewal

applications for two employees. BVSPC discovered the submissions in May 2013 and

promptly notified USAID. BVSPC also provided the dates it received the work

permits and the amount of time the two employees worked on the Project after

obtaining permits.

      It is undisputed that “USAID never took any adverse action against BVSPC

despite its awareness of both the altered document allegations and the inadvertent

submissions.” The parties stipulated that, from April 19, 2011, to April 18, 2013,

BVSPC submitted over fifty invoices to USAID. All but five invoices were submitted

after USAID learned of the altered documents. And some of the invoices included

charges for work performed by the seven employees for whom altered education

documents were discovered. USAID paid BVSPC’s invoices and never sought a

refund, even after the Relators filed the complaint that is the subject of this appeal.

Indeed, in December 2013, USAID and BVSPC modified the Contract to award

additional work to BVSPC in Afghanistan. And by the time the parties filed the

                                            7
pretrial order on November 25, 2014, USAID had paid BVSPC over $209 million for

its work on the Project.

                              B. Procedural History

      On August 23, 2011, Relators filed this suit in the United States District Court

for the District of Kansas. The government declined to intervene.3 Relators alleged

BVSPC violated the False Claims Act (FCA) by “creat[ing] falsified and fraudulent

credential documentation (e.g., diplomas)” to obtain visas and work permits for its

employees and “[b]y presenting claims to officers or employees of the United States

for payment of wages for employees who had work visas and work permits as a result

of fraud.”

      On summary judgment, the district court concluded based on the undisputed

facts that USAID knew about Relators’ allegations but continued to pay BVSPC even

after learning of and investigating the altered documents. In addition, USAID did not

demand a refund or take any other adverse action against BVSPC. Under these facts,

the district court determined that Relators could not prove BVSPC’s alleged

violations were material to USAID’s payment decisions. Accordingly, the district




      3
        Although the government itself may assert claims under the False Claims Act
(FCA), the FCA also includes qui tam provisions which allow individuals to sue on
the government’s behalf. 31 U.S.C. § 3730(b). In such cases, the government may
intervene but “often declines to do so.” United States ex rel. Lemmon v. Envirocare
of Utah, Inc., 614 F.3d 1163, 1167 (10th Cir. 2010). When the government does not
intervene, the private plaintiff, or relator, may pursue claims individually and, if
successful, may be entitled to a percentage of the recovery. 31 U.S.C. § 3730(d).

                                          8
court granted BVSPC’s motion for summary judgment. In the alternative, the district

court granted summary judgment based on Relators’ failure to prove damages.

                                  II.   DISCUSSION

      We review the grant of summary judgment de novo, “apply[ing] the same legal

standard used by the district court . . . and examin[ing] the record to determine if any

genuine issue of material fact was in dispute; if not, we determine if the substantive

law was correctly applied.” Applied Genetics Int’l, Inc. v. First Affiliated Sec., Inc.,

912 F.2d 1238, 1241 (10th Cir. 1990). In addition, “we view the factual record and

draw all reasonable inferences therefrom most favorably to” Relators as the

nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998).

      Applying this standard, we agree that Relators cannot prevail as a matter of

law because the undisputed facts establish that any alleged contractual or regulatory

violation by BVSPC was not material to USAID. We therefore affirm the district

court’s decision granting summary judgment in favor of BVSPC.

                               A. Materiality Standard

      The FCA imposes liability when a person “knowingly presents, or causes to be

presented, a false or fraudulent claim for payment or approval.” 31 U.S.C.

§ 3729(a)(1)(A).4 To prove “a false or fraudulent claim” the plaintiff may rely on

“either a legally or factually false request for payment.” United States ex rel.

      4
        Although Relators did not explicitly identify section 3729(a)(1)(A) as the
basis for their claims, the Second Amended Complaint alleges “BVSPC knowingly
presented false claims for payment or approval to officers or employees of the United
States” and does not identify any other FCA provision that BVSPC allegedly
violated.
                                            9
Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1168 (10th Cir. 2010). Factually

false claims “generally require a showing that the payee has submitted ‘an incorrect

description of goods or services provided or a request for reimbursement for goods or

services never provided.’” Id. (quoting United States ex rel. Conner v. Salina Reg’l

Health Ctr., 543 F.3d 1211, 1217 (10th Cir. 2008)). “Claims arising from legally

false requests, on the other hand, generally require knowingly false certification of

compliance with a regulation or contractual provision as a condition of payment.” Id.

Here, Relators rely on legally false claims—namely, Relators allege that BVSPC

falsely certified compliance with the Contract after altering documents to obtain

work permits and visas from the Afghan government.

      Such claims of legal falsity “can rest [on] one of two theories—express false

certification, and implied false certification.” Conner, 543 F.3d at 1217. Express

false certification is based on a “false statement that relates to a claim, whether made

through certifications on invoices or any other express means.” Id. By contrast, “the

pertinent inquiry for [implied-false-certification] claims is not whether a payee made

an ‘affirmative or express false statement,’ but whether, through the act of submitting

a claim, a payee knowingly and falsely implied that it was entitled to payment.”5

Lemmon, 614 F.3d at 1169 (quoting Shaw v. AAA Eng’g & Drafting, Inc., 213 F.3d

519, 532 (10th Cir. 2000)).


      5
        Relators originally based their FCA claim on both express- and implied-
false-certification theories, but the district court granted BVSPC’s motion to dismiss
with respect to the express-false-certification claim. Relators have not appealed that
ruling.
                                           10
      Although express and implied claims differ, both “nonetheless share some

common elements, including a materiality requirement.” Id. We adopted the

materiality element in Conner, explaining that “[l]iability [under the FCA] does not

arise merely because a false statement is included within a claim”; rather, “the false

statement must be material to the government’s decision to pay out moneys to the

claimant.” 543 F.3d at 1219 & n.6 (second alteration in original); United States ex

rel. A+ Homecare, Inc. v. Medshares Mgmt. Grp., Inc., 400 F.3d 428, 443 (6th Cir.

2005) (“[T]he FCA imposes liability only for false statements or conduct which are

material to a false or fraudulent claim for money or property from the Government.”).

      In Conner, the plaintiff asserted an express-false-certification claim and

argued that by signing a general certification of compliance, the defendant was liable

under the FCA based on any failure to comply with any underlying statute or

regulation. 543 F.3d at 1219. We disagreed and adopted the materiality requirement

as a means to determine which instances of noncompliance are covered by the FCA.

See id. at 1219–20. Specifically, we held that a false certification is material “only if

it leads the government to make a payment which it would not otherwise have made.”

Id. at 1219.

      We have since clarified that “materiality does not require a plaintiff to show

conclusively that, were it aware of the falsity, the government would not have paid.

Rather, it requires only a showing that the government may not have paid.” Lemmon,

614 F.3d at 1170. This standard is consistent with the statutory language of the FCA,



                                           11
which defines “material” as “having a natural tendency to influence, or be capable of

influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4).

      But when applying that standard, our analysis of implied-false-certification

claims “focuses on the underlying contracts, statutes, or regulations themselves to

ascertain whether they make compliance a prerequisite to the government’s

payment.” Lemmon, 614 F.3d at 1168 (quoting Conner, 543 F.3d at 1218). It is not

enough that the plaintiff identifies any violation of any applicable provision as a

basis for FCA liability. See Conner, 543 F.3d at 1219. Instead, our precedent—

consistent with that from other circuits—requires that we consider the purpose of the

underlying contract and the significance of the relevant violation to that purpose in

assessing whether the alleged violation may have affected the government’s payment

decisions.

      In Lemmon, for instance, the defendant had a contract with the federal

government to dispose of hazardous and radioactive waste. 614 F.3d at 1166. The

plaintiffs alleged the defendant “repeatedly violated its contractual and regulatory

obligations by improperly disposing of the contracted-for waste” and then violated

the FCA by falsely representing it had fulfilled its contractual obligations. Id.

Addressing the materiality element, we concluded the district court erred in granting

a motion to dismiss where the “[p]laintiffs cited specific contractual provisions under

which the government, had it been aware of the violations, may have refused or

reduced payment” and the “[p]laintiffs also showed that the violations undercut the

purpose of the contracts—the safe and permanent disposal of waste.” Id. at 1169.

                                           12
Because the alleged violations were central to the purpose of the contract, the

plaintiffs sufficiently pleaded materiality.

      In United States v. Triple Canopy, Inc., the Fourth Circuit’s analysis of the

materiality of the alleged violation was similarly informed by the purpose of the

contract. The court stated that, in implied-false-certification cases, the materiality

requirement

      operates to protect contractors from “onerous and unforeseen FCA
      liability as the result of noncompliance with any of potentially hundreds
      of legal requirements” in contracts, because “[p]ayment requests by a
      contractor who has violated minor contractual provisions that are merely
      ancillary to the parties’ bargain” do not give rise to liability under the
      FCA.

775 F.3d 628, 637 (4th Cir. 2015) (alteration in original) (quoting United States v.

Sci. Applications Int’l Corp., 626 F.3d 1257, 1271 (D.C. Cir. 2010)); see also id.

(explaining that “strict enforcement of the [FCA]’s materiality and scienter

requirements” is particularly important in implied-false-certification cases because

the theory “‘is prone to abuse’ by parties seeking ‘to turn the violation of minor

contractual provisions into an FCA action’” (quoting Sci. Applications Int’l Corp.,

626 F.3d at 1270)).

       The defendant in Triple Canopy contracted with the U.S. Government to

provide security services at an airbase in Iraq, subject to a contract provision

imposing a marksmanship requirement for security guards. Id. at 632. When the

defendant discovered its guards could not satisfy the requirement, it nonetheless

submitted invoices for the guards’ services and created false marksmanship records.


                                               13
Id. at 632–33. The contract’s purpose was to “ensur[e] the safety of servicemen and

women stationed at an airbase in a combat zone.” Id. at 638. Yet the defendant

“knowingly employed guards who were unable to use their weapons properly and

presented claims to the Government for payment for those unqualified guards.” Id.

The court held the government had sufficiently pleaded materiality for its FCA claim

because the false certification undermined the purpose of the contract. See id. at 637–

38 (“[C]ommon sense strongly suggests that the Government’s decision to pay a

contractor for providing base security in an active combat zone would be influenced

by knowledge that the guards could not, for lack of a better term, shoot straight.”).

       Even some courts that have not explicitly adopted a materiality requirement

nonetheless determine FCA liability by looking at the significance of the violation in

light of the purpose of the contract. For example, in Mikes v. Straus, the Second

Circuit declined to adopt a separate materiality element but discussed the “related

concept” of whether a claim may be considered legally false for purposes of the FCA.

274 F.3d 687, 697 (2d Cir. 2001). The court reasoned that although the FCA “is

intended to reach all types of fraud . . . that might result in financial loss to the

Government, it does not encompass those instances of regulatory noncompliance that

are irrelevant to the government’s disbursement decisions.” Id. (citation and internal

quotation marks omitted). It therefore held that a claim “is not legally false simply

because the particular service furnished failed to comply with the mandates of a

statute, regulation or contractual term that is only tangential to the service for which

reimbursement is sought.” Id.

                                             14
          We agree that when assessing materiality for purposes of an implied-false-

certification claim, the proper focus is on the purpose of the underlying contract and

the relevance of the allegedly violated provision to that purpose. Thus, an FCA

plaintiff may establish materiality by demonstrating that the defendant violated a

contractual or regulatory provision that “undercut the purpose of the contract[].”

Lemmon, 614 F.3d at 1169. Alternatively, where a defendant violates only a

tangential or minor contractual provision, the plaintiff may establish materiality by

coming forward with evidence indicating that, despite the tangential nature of the

violation, it may have persuaded the government not to pay the defendant. We now

apply these principles to the present facts.

                               B. Materiality in This Case

          Here, the express purpose of the Contract between BVSPC and USAID was

“to increase the supply, quantity, and distribution of electrical power from

Afghanistan’s South East Power System,” particularly in the City of Kandahar. To

that end, BVSPC agreed to complete six components of the Project, including

thirteen subcomponents, and agreed to comply with specific performance

requirements covering fourteen categories of its construction work, such as

environmental assessment, procurement and subcontracting, quality control, and

safety.

          Relators have not alleged a violation that undermined the Contract’s purpose

of providing electricity to Kandahar and the surrounding area. In particular, Relators

have not alleged that BVSPC falsely certified completion of a Project component or

                                            15
compliance with a performance requirement. And Relators have not alleged that

BVSPC provided deficient work on the Project or attempted to cover up any such

deficiency. To the contrary, it is undisputed that, at the time of summary judgment,

USAID had issued notices of final completion and acceptance of work on ten of the

thirteen subcomponents to be completed by BVSPC, with similar notices pending for

the other three. Moreover, USAID modified the contract to award additional work to

BVSPC. Even viewing the facts in the light most favorable to Relators as the

nonmoving party, the record does not reasonably support an inference that BVSPC

performed deficiently on the Project.

      Although Relators acknowledge that none of the Project components or

performance requirements require BVSPC to obtain work permits or visas, they argue

that “[i]f the work on the six components was an integral part of the Contract, then

employing workers to do that work was an integral part of the Contract. Without

work permits, BVSPC employees could not legally work in Afghanistan.” It follows

then, they argue, that BVSPC materially violated the Contract by altering educational

documents to obtain visas and work permits for seven employees. In addition, of

more than one hundred regulations incorporated into the Contract, Relators rely on

two that require BVSPC to (1) comply with all applicable U.S. and host-country laws

and (2) ensure “[a]ll personnel have all necessary passports, visas, entry permits, and

other documents required . . . to enter and exit the foreign country.” 48 C.F.R. §

52.225-19(d)(1), (e)(2)(iii). Relators allege BVSPC’s creation of altered documents



                                          16
violated the Afghan Penal Code and therefore violated the Contract’s requirement to

comply with Afghan law.

      Even if we assume that BVSPC altered the documents and thereby violated

Afghan law, Relators have not established that the violation undercut the purpose of

the Contract. Relators instead rely on general regulatory provisions incorporated by

reference into all international government contracts. See 48 C.F.R. § 52.225-19(b)

(explaining that section 52.225-19 “applies when Contractor personnel are required

to perform outside the United States”). Nothing in the Project-specific provisions of

the Contract addressed this issue. As we have already determined, violations which

are merely tangential to the purpose of a government contract, standing alone, are

insufficient to satisfy the materiality requirement under the FCA. See Conner, 543

F.3d at 1219. And Relators offer no evidence to demonstrate that the alteration of

documents may have influenced USAID not to pay BVSPC, despite the tangential

nature of the violation. The undisputed evidence instead confirms that USAID did not

withhold payment after learning of Relators’ allegations.

      Specifically, the undisputed facts establish that USAID knew Relators had

discovered altered documents and that they alleged the documents had been used to

fraudulently obtain work permits and visas. USAID also knew that HP’s forensic

analysis confirmed at least some of the documents had been altered on a BVSPC

computer and that some altered documents were actually submitted to the Afghan

government in 2012. Although investigative efforts failed to identify the person

responsible for the alterations, USAID was aware that the evidence strongly

                                          17
suggested someone at BVSPC had altered documents. Notwithstanding this

information, USAID never took any adverse action against BVSPC.

      To the contrary, from April 19, 2011, to April 18, 2013, BVPSC submitted

over fifty invoices to USAID. The invoices included charges for work performed by

employees whose educational documents had been altered. Yet USAID never

withheld payment on any BVSPC invoice, never demanded a refund of payments

made to BVSPC, and never invoked any of the discretionary remedies incorporated

into the Contract. See, e.g., 48 C.F.R. § 52.216-7(g) (granting authority for the

Contracting Officer to perform an audit and reduce payment for non-allowable costs

or adjust for overpayments); id. § 52.225-19(h) (permitting the Contracting Officer to

direct the removal or replacement of any personnel who fail to comply with

contractual requirements); id. § 52.232-16(c) (allowing USAID to reduce or suspend

progress payments for failure to comply with a material contractual requirement); id.

§ 52.249-6(a)(1) (providing for discretionary termination of a contractor if it is in the

government’s interest). Rather, USAID accepted BVSPC’s work and paid all BVSPC

invoices without objection or reservation. At the time of summary judgment USAID

had paid over $209 million on BVSPC’s invoices, the majority of which were

submitted after Relators and BVSPC had notified USAID about the altered

documents.

      Thus, even if BVSPC violated the Contract by altering educational documents

for its employees, the undisputed facts show that the violation was not material to

USAID’s payment decisions.

                                           18
                        C. Relators’ Position on Materiality

      Relators contend that USAID did not know whether BVSPC actually submitted

altered documents to the Afghan government but only that Relators had alleged as

much. Without such confirmation, Relators maintain that materiality cannot be

decided on summary judgment. In addition, Relators argue BVSPC misled USAID

about the circumstances surrounding the altered documents. Finally according to

Relators, the district court did not understand the necessary context when it relied on

evidence of USAID’s continued payment even after BVSPC gave notice that it had

inadvertently submitted altered documents in 2012. None of these arguments

persuades us that the violations here were material.

1.    Confirmation of Relators’ Allegations

      First, Relators argue that materiality cannot be determined on summary

judgment because the evidence shows only that USAID was aware of allegations of

wrongdoing but did not know whether BVSPC had actually violated any law or

contractual provision. As support for this position, Relators rely on a decision from

the California Court of Appeal, San Francisco Unified School District ex rel.

Contreras v. First Student, Inc., 168 Cal. Rptr. 3d 832 (Ct. App. 2014).

      In Contreras, the relator alleged the defendant bus company violated

California’s False Claims Act by requesting payment from the school district despite

its noncompliance with multiple maintenance requirements. On appeal, the bus

company did not dispute there was evidence “of a substantial number of maintenance

failures” and evidence that the condition of buses was “a matter of great importance

                                          19
to the District.” Id. at 843. “Instead, defendant argue[d] its evidence show[ed] that

the alleged false implied certifications were not material because the District declined

to intervene in the present action, declined to bring an action of its own for breach of

contract, always paid defendant’s monthly invoices in full, and extended the Contract

. . . .” Id. The California Court of Appeal found this reasoning “misplaced” because

the defendant had not established what the court considered “a critical factual

predicate to giving any significance to the District’s reaction to plaintiffs’

allegations—that the District knew about the falsity of defendant’s implied

certifications.” Id. Although the evidence showed the District was aware of the

plaintiffs’ allegations, “there [was] no evidence the District had actual knowledge of

defendant’s wrongdoing—as opposed to allegations of wrongdoing.” Id. The court

therefore reversed the grant of summary judgment because there was “no evidence

suggesting the District would have considered the alleged maintenance failures

immaterial, if the District knew the allegations were true.” Id. at 844.

      Contreras is not dispositive or persuasive in this case for several reasons. First

and most obviously, we are not bound by a decision from an intermediate state court

interpreting a state statute patterned after the FCA. Second, unlike the violation here,

the violation in Contreras was material to the purpose of the contract. There, the bus

company failed to comply with bus maintenance requirements, which it admitted

were of great importance to the district and central to the purpose of providing safe

transportation of school children. Significantly, upon confirming multiple violations

of inspection requirements, the district immediately sent a letter stating, “the District

                                            20
‘cannot and will not accept this level of service from the contractor responsible for

the safe transportation of its students,’” and directed the bus company to immediately

remove noncompliant buses. Id. at 846. Third, Contreras appears to be the sole case

in which a court has concluded the government’s actions are irrelevant to the

materiality analysis in the absence of confirmation of the relators’ allegations. Other

courts have found evidence of the government’s inaction after learning of alleged

violations sufficient to establish the lack of materiality. See, e.g., United States ex

rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 828, 831 (7th Cir. 2011)

(finding a lack of materiality in light of the “undisputed fact that the [agency] had

already been notified” of the relator’s allegations and “failed to take action when it

actually learned of the supposed misrepresentation”); United States ex rel. Owens v.

First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 729 (4th Cir. 2010)

(concluding government was not misled by contractor where government signed off

on alleged mistakes and continued to express satisfaction even after investigating

relator’s allegations); United States ex rel. Smith v. Boeing Co., Civil Action No. 05-

1073-MLB, 2014 WL 5025782, at *15, *28 (D. Kan. Oct. 8, 2014) (unpublished)

(addressing materiality in dicta and concluding that “[a]ny lingering doubt on [the

materiality] question [was] dispelled by the actions of the government purchasers

after learning of relators’ claims” because the government continued to certify the

defendant’s aircraft and did not take any remedial action).

       Here, USAID’s actions are telling. USAID knew BVSPC had submitted

altered documents in 2012 and that at least some of the altered documents were

                                            21
created on a BVSPC computer and may have been previously submitted to the

Afghan government. But USAID did not withhold or suspend payment pending the

outcome of the investigations of the altered documents. And it did not reserve any

rights while attempting to confirm the truth of Relators’ allegations. Instead, USAID

paid BVSPC’s invoices in full and without reservation. Even if the allegations had

been proved, they were merely tangential to the purpose of the Contract, and the

undisputed evidence is simply incapable of supporting a finding that USAID may

have altered its payment decisions despite the tangential nature of that relationship.

2.    Evidence That BVSPC Misled USAID

      Relators also argue the evidence shows BVSPC misled USAID in three ways:

First, Relators allege “[t]he summary judgment record showed BVSPC made

unsubstantiated accusations that Relators may be responsible for forging the

diplomas.” Second, Relators rely on BVSPC’s failure to disclose an internal ethics-

committee report suggesting that either Mr. Whitehouse or Mr. Afridi created the

altered documents. Finally, Relators argue the evidence supports an inference that

BVSPC attempted to conceal copies of employee files.

      With respect to the latter argument, the undisputed evidence shows that

USAID knew BVSPC could not locate or provide copies of employment files because

it had not maintained organized records. These files might have confirmed that

altered documents were filed with the Afghan government. But the evidence is

undisputed that USAID knew altered documents were actually submitted to the

Afghan government in 2012. Yet USAID continued to make payments to BVSPC,

                                           22
accepted BVSPC’s work on the Project, and expanded the Contract to include

additional work. Under these circumstances, whether BVSPC attempted to conceal

copies of employment files is irrelevant.

      In their other two arguments, Relators essentially maintain that BVSPC misled

USAID with respect to the identity of the person who altered the documents. But

there is no evidence from which a reasonable jury could conclude that USAID’s

decisions were affected by the failure to identify the person responsible. At the very

least, USAID knew the documents were created on a BVSPC computer and therefore

that someone at BVSPC was likely responsible for the alterations. Nevertheless,

USAID continued to pay BVSPC without objection. The undisputed evidence simply

does not support Relators’ arguments that USAID may have withheld payment if it

had learned the identity of the responsible person.

3.    2012 Submission of Altered Documents

      Finally, Relators argue USAID did not understand the context of BVSPC’s

admission that it submitted altered documents to the Afghan government in 2012.

Relators do not dispute that BVSPC submitted the documents and, upon discovery of

the submission, informed USAID. Rather, Relators reiterate their evidence of alleged

misrepresentations by BVSPC, which they assert prevented USAID from knowing

whether BVSPC had altered the documents and whether BVSPC intentionally or

inadvertently submitted them in 2012.

      These arguments, however, cannot be sustained in light of Relators’ summary-

judgment briefing, in which they admitted all facts related to the 2012 submissions.

                                            23
Relators did not dispute that BVSPC submitted altered documents to the Afghan

government on two occasions in 2012 and did not challenge the characterization of

these submissions as “inadvertent.” And Relators admitted “USAID never took any

adverse action against BVSPC despite its awareness of both the altered document

allegations and the inadvertent submissions.” Thus, it is undisputed that USAID

continued to pay even knowing that BVSPC had been accused of submitting altered

documents to the Afghan government in 2011 and that BVSPC inadvertently

submitted such documents on two occasions in 2012.

      In sum, the undisputed evidence demonstrates the altered documents were not

material to USAID’s payment under the Contract. We therefore affirm the district

court’s grant of summary judgment based on Relators’ failure to prove materiality.6

                                III. CONCLUSION

      For the above reasons, we AFFIRM the district court’s decision granting

summary judgment in favor of BVSPC.




      6
       Because we affirm the district court’s decision based on lack of materiality,
we do not address its alternative ruling that Relators failed to come forward with
evidence of damages.
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