Fifth Circuit: Employer Can Be Vicariously Liable For Employees Violating the Anti-kickback Act | Practical Law

Fifth Circuit: Employer Can Be Vicariously Liable For Employees Violating the Anti-kickback Act | Practical Law

In US v. Kellogg Brown & Root, Inc., the US Court of Appeals for the Fifth Circuit held that the civil suit provision of the Anti-Kickback Act permits the government to allege that an employer is vicariously liable for the kickback-related conduct of its employees.

Fifth Circuit: Employer Can Be Vicariously Liable For Employees Violating the Anti-kickback Act

by Practical Law Commercial
Published on 24 Jul 2013 • USA (National/Federal)
In US v. Kellogg Brown & Root, Inc., the US Court of Appeals for the Fifth Circuit held that the civil suit provision of the Anti-Kickback Act permits the government to allege that an employer is vicariously liable for the kickback-related conduct of its employees.
On July 19, 2013, the US Court of Appeals for the Fifth Circuit released its opinion in US v. Kellogg Brown & Root, Inc., and held that under the Anti-Kickback Act (41 U.S.C. §§ 51-58), the government can bring a civil suit against a corporate entity under the theory that the corporation is vicariously liable for the kickback activities of its employees.

Background

Kellogg Brown & Root, Inc. (KBR) had a contract with the US government to provide global logistical services to the US Army. The company used two subcontractors to assist in completing certain tasks under the contract. Between 2002 and 2006, employees in KBR's transportation department allegedly accepted kickbacks from the subcontractors to obtain favorable treatment on their subcontracts. The kickbacks included meals, drinks, golf outings, tickets to games and events and other gifts.
Two private parties brought a qui tam suit against KBR and other defendants for the alleged kickbacks. The US then intervened in the case against KBR and filed its own complaint under the Anti-Kickback Act (AKA) (41 U.S.C. § 55(a)(1)), which permits the government to recover a civil penalty from a person that knowingly violates the AKA. KBR moved to dismiss the government's complaint, arguing that the government had failed to state a claim for civil liability under the AKA because Section 55(a)(1) of the act does not permit vicarious liability.
The US District Court for the Eastern District of Texas granted KBR's motion to dismiss the AKA count and held that corporate vicarious liability does not extend to violations of Section 55(a)(1) of the AKA.

Outcome

The Fifth Circuit held that Section 55(a)(1) of the AKA permits the government to allege that an employer is vicariously liable for the conduct of its employees. The court reversed the district court's decision granting KBR's motion to dismiss and remanded the case.
Under the AKA, in connection with a contract with the federal government or a related subcontract, a person may not:
  • Provide, attempt to provide or offer to provide a kickback.
  • Solicit, accept or attempt to accept a kickback.
Section 55(a)(1) of the AKA permits the federal government to recover from a person that knowingly violates the act a civil penalty equal to:
  • Twice the amount of each kickback involved in the violation.
  • Not more than $11,000 for each occurrence of prohibited conduct.
After reviewing the act's language, the Fifth Circuit found that:
  • Section 55(a)(1) allows the government to "recover from a person."
  • The act broadly defines person to include corporations and other business entities.
  • By Section 55(a)'s plain terms, a corporate person, and not only its individual employees, can be held liable under subsection (a)(1).
  • A corporation is only a legal entity and technically cannot act by itself; however, the acts of its agents and employees can be imputed to the corporation where those natural persons acted on the corporation's behalf.
Therefore, the court held that since Section 55(a)(1) makes corporations liable for kickback activity, it requires attributing liability to corporate entities for that activity under a rule of vicarious liability.
The court also found that the government's complaint sufficiently alleged vicarious liability. It noted, however, that the government must still provide evidence that the KBR officials who accepted kickbacks acted under apparent authority.

Practical Implications

A corporation that is a party to a government contract can face vicarious liability for civil penalties if its agents or employees violate the Anti-Kickback Act. This can include double damages and per-occurrence penalties for employees who knowingly violate the act. Employers should ensure that all of their employees are aware of anti-bribery and anti-kickback laws and that their employees assiduously follow these laws.

Court Documents