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Oles Morrison

Fraud Jurisdiction at the ASBCA: Complicated and Complex

By on January 12, 2017 | Posted in Claims and Disputes

ASBCAWhile the Armed Services Board of Contract Appeals (ASBCA or Board) has jurisdiction over contract claims, the ASBCA does not have jurisdiction over fraud.  This can lead to competing cases in multiple jurisdictions if the government has a claim of fraud against a contractor while the contractor is pursuing a contract claim concerning the same contract at the ASBCA.  To manage these conflicts, the Board will stay the Board proceeding or dismiss it without prejudice pending the outcome of the fraud proceeding based on the consideration of the following four factors: 1) whether the facts, issues and witnesses in the two proceedings were similar; 2) whether the parallel matter would be compromised by proceeding here; 3) whether the non-moving party would be harmed by more delay; and 4) whether the duration of the suspension sought was reasonable.

In Kellogg Brown & Root Services, the ASBCA held that a request to stay or dismiss without prejudice had limits.  In 2010, Kellogg Brown & Root (KBR) submitted certified claims for subcontract settlement costs, which it later appealed to the ASBCA.  In 2013, the ASBCA dismissed these appeals without prejudice because of a pending FCA suit.  In February 2016, the ASBCA reinstated the appeals.  The government moved to stay or dismiss the appeals again because the FCA case was still in the discovery stage.  For the fourth factor, the Board held the stay sought was not reasonable because it would essentially be an indefinite stay.  For the third factor, the Board held another dismissal could prejudice KBR due to the length of time that had occurred since the certified claims had been submitted.  The Board found there was a “substantial risk” that evidence would become stale if a more significant delay occurred.  For the second factor, the government had admitted the Board proceeding would not compromise the government’s FCA case as long as it could obtain complete discovery and develop the record.  For the first factor, the Board held similarity of facts, witnesses, and issues between the two proceedings alone were insufficient to dismiss the appeal.  Therefore, the ASBCA denied the government’s motion to dismiss or stay the appeals.

The government moved for reconsideration on the grounds that Laguna Construction Co. v. Carter had established a new legal principle that as a matter of law that contractor cost appeals must be suspended when they are also the subject of a pending government fraud claim.  In Laguna, the U.S Court of Appeals for the Federal Circuit acknowledging precedent allowed the government to assert fraud as an affirmative defense as long as the Board did not have to determine fraud.   The federal circuit held the Board’s determination of fraud as a prior material breach of contract was allowable because fraud had been established in the district court.

The Board denied the government’s motion for reconsideration because the government’s fraud claim had not been established in district court and had not been pled as an affirmative defense.  The Board held Laguna did not mandate the Board suspend an appeal due to a pending FCA claim in district court.

The practical outcome of the KBR case is that a contractor should be able to pursue its contract claims against the government while a fraud case is pending and the government cannot assert an affirmative defense of fraud against the contractor unless a district court has made a finding that fraud exists.