Government Contracts Monitor

Anti-Kickback Act’s Reach Includes Vicarious Liability for an Employer

August 7, 2013

In a case of first impression, the Fifth Circuit held that a specific civil provision of the Anti-Kickback Act extends vicarious liability to an employer for the acts of its employees. In United States ex. rel. Vavra v. Kellogg Brown & Root, No. 12-40447 (5th Cir. 2013), the Court reversed a decision by the District Court which held that the Act does not allow the government to allege vicarious liability.

The case involved KBR’s contract for global logistical services to the U.S. Army in Iraq, Afghanistan, and Kuwait. Two subcontractors, EGL, Inc., and Panalpina, Inc., gave a senior KBR employee numerous kickbacks for securing subcontracts in connection with the Army contract, including “meals, drinks, golf outings, tickets to rodeo events, baseball games, football games, and other gifts and entertainment.”

The qui tam suit was brought by two individuals against KBR and its employee, with allegations including civil violations of the Anti-Kickback Act, 41 U.S.C. § 55 et seq. Section 55(a)(2) of the Act specifically provides for vicarious liability in connection with “any person whose employee, subcontractor or subcontractor employee” provides, accepts, or charges a kickback, but § 55(a)(1) refers only to “any person who knowingly engages in conduct” prohibited by the Act. Section 55(a)(1) permits double damages and pre-occurrence recoveries, but § 55(a)(2) permits a civil penalty only in the amount of the kickback. The District Court granted KBR’s motion to dismiss for failure to state a claim based on the vicarious liability issue and difference in the language between §§ 55(a)(1) and (a)(2). The Fifth Circuit reversed, holding that the “any person” language of § 55(a)(1) permits the government’s allegation to go forward against KBR, because “[b]y §55(a)’s plain terms, a corporate person, and not solely its individual employees, can be held liable under both subsections (a)(1) and (a)(2) [of 41 U.S.C. §55(a)].” The Court also held that the theory of relief in this case is “apparent authority,” or an employee purporting to act on behalf of the company and providing a third party with a reasonable belief that the act was on the company’s behalf, because there were no allegations that the KBR employees accepted kickbacks within the scope of their employment at KBR.

The Court held, however, that the government must still prove a knowing violation before it can obtain the double damages and pre-occurrence recoveries of § 55(a)(1). The Court stated in a footnote that “as this case progresses on remand, the government must of course provide evidence that KBR officials acted under apparent authority in accepting kickbacks before the government may prove a knowing violation of § 55(a)(1) by KBR.” The Court then sought to provide some solace to employers who may be fearful of the implication of the ruling: “[u]nder that standard, it is clear that KBR cannot be exposed to an unexpected flood of liability for nefarious acts of any and every member of its worldwide workforce.”

The Court stated that the issue of apparent authority was a “fact-intensive” inquiry. Therefore, the case will now be remanded to the District Court, and will resume its normal course of civil litigation, including discovery on the critical issue of apparent authority. This case is a reminder to employers that the Anti-Kickback Act has the potential to ensnare companies for the acts of their employees, further underscoring the need for strong compliance programs and regular training for employees regarding cases like this.

Brian Stolarz and Pete Hoffman are the attorneys responsible for the content of this article.