The Seventh Circuit’s rejection of the implied certification theory of liability gave rise, in part, to the circuit split resolved by the Supreme Court’s opinion in Escobar.  In its first FCA decision since the Supreme Court’s opinion – U.S. ex rel. Sheet Metal Workers International Association v. Horning Investments, LLC, the Seventh Circuit sidestepped the question of whether the relator’s allegations that a government contractor’s certification of compliance with the Davis-Bacon Act amounted to an implied false certification sufficient to give rise to FCA liability.  Rather than tackle the implications of Escobar, the Seventh Circuit affirmed entry of summary judgment in favor of the contractor, explaining that the defendant’s conduct amounted to certifying compliance with an ambiguous statutory obligation and, therefore, did not constitute a “knowing” violation of the FCA.

In Horning, the relator asserted FCA claims against a subcontractor on a construction project for the U.S. Department of Veterans Affairs (VA) for allegedly violating the Davis-Bacon Act by failing to compensate workers at prevailing wages.  According to the relator, Horning failed to pay workers prevailing wages because it deducted a $5.00 per hour flat fee from the paychecks of each of its employees and placed those funds in an insurance trust without regard to whether an employee was presently eligible for any benefits and without evaluating the actual monetary value of the benefit for each individual employee.  Horning allegedly violated the FCA by certifying compliance with the Davis-Bacon Act in connection with its request for payment from the VA.

In affirming the district court’s entry of summary judgment, the Seventh Circuit relied on the ambiguity of the statutory framework at issue to conclude that Horning’s conduct did not give rise to an inference that Horning met the FCA’s knowledge requirement.  The Seventh Circuit noted that the Davis-Bacon Act and relevant Department of Labor (DOL) regulations did not require an employer to make the type of specific, individualized value calculations proposed by the relator.  Accordingly, the failure to do so did not suggest that Horning knew that its certifications of compliance with the Davis-Bacon Act were false.

In addition, agency guidance allowed employers to count contributions to an insurance plan for employees who are not yet eligible for coverage when the plan specifically requires the employer to make that contribution during a waiting period for new employees.  DOL, however, had not specified whether that allowance would apply to contributions to a trust rather than to a plan.  The record before the district court also was devoid of evidence as to whether Horning was contractually obligated to make such contributions during a waiting period.  As a result, Horning’s deduction of trust contributions from employee paychecks did not amount to a violation of the Davis-Bacon Act.

The Seventh Circuit explained that “[a]ll that is relevant for present purposes is that there is enough ambiguity about this matter that we cannot infer that Horning either knew or must have known that it was violating the Davis-Bacon Act.”

While the Seventh Circuit questioned whether Horning’s actions amounted to “the kind of ‘implied false certification’ that the Court discussed in [Escobar],” (decision discussed in detail here), it did not reach that issue because of relator’s failure to identify evidence of the defendant’s intent.  It remains to be seen how the Seventh Circuit will treat the implied certification theory of liability post-Escobar.

In dissent, Judge Richard Posner argued that it was “premature to exonerate Horning.”  According to Judge Posner, as an experienced contractor on Davis-Bacon Act projects, Horning must have been aware of the Act’s requirements, and if Horning “didn’t know, it must have been because they closed their eyes to those requirements—a good example of ostrich behavior, itself a good example of deliberate indifference within the meaning of the False Claims Act.”  Accordingly, Judge Posner would have remanded the case for trial to more fully understand the “scope and gravity of Horning’s conduct,” including “how many employees were forced to contribute $5 of their compensation to a trust from which they could not benefit or how much less they received than they were entitled to.”