Fourth Circuit: Government Not Collaterally Estopped from Prosecuting Defendant After Declining to Intervene in Civil FCA Suit Against Him

In United States v. Whyte, – F.3d –, 2019 WL 1119591 (4th Cir. 2019), the court reasoned that the government is not collaterally estopped from prosecuting a defendant after declining to intervene against the defendant because the government “is not a party to an FCA action in which it has declined to intervene” and thus would not have had a “full fair opportunity to litigate” the overlapping issues. The court also held that the defendant could be convicted for defrauding the United States by defrauding a multinational organization that was funded by the Department of Defense.

The government in Whyte alleged that the defendant, a former owner and operator of defense contractor Armet Armored Vehicles, caused Armet to enter into contracts worth $6.4 million to provide the Joint Contracting Command–Iraq with 32 armored vehicles for transporting senior Iraqi officials. After entering into the contracts, the defendant allegedly misrepresented Armet’s ability to deliver in order to receive upfront payments not permitted by the contracts, and allegedly provided defective vehicles that lacked the armor specified in the contracts.

A jury in the Western District of Virginia convicted the defendant of major fraud against United States, wire fraud, and submitting false claims, all in violation of 18 U.S.C. §§ 1031, 1343, and 287, respectively. The district court sentenced the defendant to nearly six years in prison.

On appeal, the defendant argued in part that the government was collaterally estopped from charging him with fraud because it had declined to intervene in a parallel civil FCA suit filed by a former Armet executive against the defendant and Armet under the qui tam provisions of the civil False Claims Act, 31 U.S.C. § 3730. In that suit, the defendant prevailed over the private relator.

The Fourth Circuit rejected the defendant’s argument. At the outset, the court explained that the government is collaterally estopped from bringing a criminal prosecution only if the defendant can establish that “the issue in question is identical to the issue adjudicated in the prior proceeding,” the issue was actually and necessarily determined in the prior adjudication, the resulting judgment was final and valid, and “the parties had a full and fair opportunity to litigate the issue in the prior proceeding.” The court held that the defendant failed to establish the latter requirement, and declined to consider the others.

Specifically, the court ruled that the defendant failed to establish that the government “had a full and fair opportunity to litigate the issue[s]” in the civil FCA suit because it was not a party to that suit since it declined to intervene. The court observed that, although the government remains the real party in interest and maintains some degree of control after a declination decision, the government lacks the opportunity to litigate the case. The government exercises “no control over the evidence, examination of witnesses, briefing of legal arguments, or wording of jury instructions—all hallmarks of litigation strategy, which remained with the relator.” The court added that, if the government were a party even after a declination, there would be no reason for it to decide whether to intervene or decline in the first place. And the government would be forced to intervene even when it did not want to, just to avoid being estopped.

The court also rejected the defendant’s separate argument that the indictment was deficient and the evidence was insufficient to convict him for defrauding the United States because the JCC-I was not a government agency. The court held that the indictment properly alleged fraud on the federal government because it alleged that the DOD contracted through the JCC-I. The court also found that the evidence was sufficient to support the convictions because an Air Force officer signed the contract with Armet on behalf of the United States, the JCC-I derived its contracting authority from the DOD, and the DOD paid for the Armet vehicles at issue using Congressional appropriations.

The Whyte case serves as a reminder that the government often brings parallel civil and criminal proceedings based on allegations of government fraud, and success in one case does not always beget success in the other. Companies and individuals that confront government fraud investigations should therefore retain counsel who have substantial experience defending both civil and criminal cases.