CooleyAlert! News from our Government Contracts Group The Significant Risk to SBIR Program Participants Under the False Claims Act
based on incorrect statements of fact, and
as the basis for his qui tam action. After
nies, the U.S. Government’s Small Business
a lengthy investigation, the United States
Innovation Research (“SBIR”) Program is
ment for performance of that contract. In
Attorney intervened in the case. Signifi-
an attractive source of R&D funding when
certain circumstances, the contractor can
cantly, the government did not argue that
face civil penalties of not less than $5,500
LPT’s invoices were factually incorrect, or
and not more than $11,000, for each invoice.
panies fail to appreciate the different and
In addition to these baseline penalties, the
than was due under the terms of LPT’s SBIR
significant risks associated with applying for
contractor can be liable for “three times the
contracts. Instead, the government argued
public funding through the SBIR program. A
that the invoices were “tainted because they
recent case in the U.S. District Court for the
[arose] from a contract procured by false or
Southern District of Texas, in which a small
The “qui tam” provision of the FCA allows
technology company was found civilly liable
private individuals not injured by the defen-
On the parties’ cross-motions for summary
under the False Claims Act for statements
dant’s conduct to sue the defendant on
made in its SBIR proposals, illustrates the
behalf of the United States. As an incentive
defendants, concluding that certain state-
potentially severe consequences of unfamil-
to sue under the qui tam provision, the FCA
ments in LPT’s SBIR proposals were untrue,
iarity with the risks unique to doing business
allows “relators” (the private “plaintiffs” in
that LPT had knowledge of the falsity of the
with Uncle Sam. See United States ex rel.
FCA suits) to receive up to 30 percent of
statements (or at least reckless disregard for
Longhi v. Lithium Power Technologies, Inc.,
the proceeds of the action or settlement of
their truth), and that the statements were
H-02-4329, Sept. 27, 2007; Jan. 3, 2008.
material to the agency’s decision to award
The False Claims Act The Longhi Case
The False Claims Act (“FCA”), in relevant
The defendants in the Longhi case were
part, imposes liability on “any person” who:
Lithium Power Technologies (“LPT”), a
Gregory A. Smith. . . . . . . . . . . . . 703/456-8163
1. knowingly presents, or causes to be pre-
sented, to an officer or employee of the
Kevin P. Mullen . . . . . . . . . . . . . . .202/842-7882
formed LPT as a successor to a series of
of the Armed Forces of the United States
David E. Fletcher. . . . . . . . . . . . . . 202/842-7813
with the intention of developing advanced
lithium batteries and capacitors. From 1998
Christopher J. Kimball. . . . . . . . .202/842-7892
to 2004, LPT secured Phase I and Phase II
2. knowingly makes, uses, or causes to be
made or used, a false record or statement
more than $5.8 million. Of this amount, the
This information is a general description of the law; it is not intended to
to get a false or fraudulent claim paid or
provide specific legal advice nor is it intended to create an attorney-client
relationship with Cooley Godward Kronish LLP. Before taking any action
$1.66 million as of the time of suit.
on this information you should seek professional counsel.
Copyright 2008 Cooley Godward Kronish LLP, 3000 El Camino Real,
The relator, Albert Longhi, was a former
Palo Alto, CA 94306. Permission is granted to make and redistribute,
without charge, copies of this entire document provided that such copies
are complete and unaltered and identify Cooley Godward Kronish LLP as
induces the government to award a contract
the author. All other rights reserved.
the contracts. In so concluding, the Court
particular invoice, the Court assessed only
focused on “whether the statements made
uct for which it contracted,” but on “the
one forfeiture for each of the four contracts.
in the proposals were literally true at the
However, because LPT’s fraud “was sys-
tematic and knowing,” the Court imposed the maximum for each forfeiture. With
The Court cited the following examples of
untrue statements in LPT’s proposals that
amount it paid out under the four contracts
facilities in the local area, LPT claimed
($1,657,455). Multiplying that figure by
three, the Court imposed total damages in
had “cooperative arrangements with the
business history and corporate status in
the civil penalties, LPT’s liability exceeded
$5 million, plus post judgment interest of
laboratories and scientific equipment.”
fied itself as a corporation and ascribed
to itself the experience of its predeces-
that LPT had no special “arrangements”
In conclusion, the Longhi case illustrates
with those facilities, but had access to
ferences between private sources of R&D
… batteries,” and that “[o]ver the years
the public. The Court found that LPT’s
statements in this regard “were factually
SBIR applicants misstate or embellish facts
in an effort to “puff up” their qualifications
can far exceed what might be expected in
by the Solicitation: In its proposals for
the commercial world. Awareness of these
after submitting the proposal), the Court
potential consequences and careful, precise
drafting of SBIR proposals can help a com-
“literally false and made with the requi-
certain “related work” it had performed
pany avoid the scrutiny of the Department
for the Army, contrary to the instructions
of Justice, and the second-guessing of the
in the solicitations. LPT argued that the
company’s statements and motives by the
solicitation instructions were vague and
describing its facilities and the equipment
where the Air Force “already knew about
the Army proposal.” The Court rejected
square feet of new laboratory and office
sion—i.e., by failing to disclose prior
teries and capacitors.” On the date the
as required by the SBIR solicitation.
On these bases, the Court concluded that
facilities were not yet complete. The gov-
each of the invoices submitted during per-
formance of LPT’s four SBIR contracts was
the proposal to demonstrate falsity, not-
a false claim for which the defendants were
ing that LPT claimed that it “occupies”
the space, and “has” a dry-room. Even though LPT argued that the facilities in
In a subsequent opinion, the Court deter-
damages. Because LPT’s liability was pred-
SBIR contracts and not the falseness of any
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