Aviation Contractors Could Face Fewer Whistleblower Lawsuits Thanks to Legal and Regulatory Shifts, Say LeClairRyan Attorneys

Legal and regulatory changes related to the False Claims Act stand to lower liability risk for government contractors in U.S. aviation, advised LeClairRyan attorneys in a 90-minute webinar on contracting in the sector. However, they cautioned, companies should continue to battle frivolous whistleblower claims and make every effort to comply with the draconian federal law.

"The penalties for False Claims Act violations can be extreme," said Brian Stolarz, an Alexandria-based Partner in the national law firm. "You're talking about a minimum of $10,781 and a maximum of $21,563 per false claim. That means if you defraud the government in the sale of 1,000 widgets, those penalties could apply to every last one. You also face the risk of trebled damages in cases that go to court."

The June 20 webinar ("Government Contracts, False Claims and the Aviation Industry") drew more than 200 professionals from across the industry. Joining Stolarz, who frequently defends aviation companies, were LeClairRyan Members Mark A. Dombroff (Alexandria) and William Janicki (Sacramento, Calif.), and Partner Joanne Zimolzak (Washington D.C.). All are part of the firm's Aviation Industry Practice group, co-led by Dombroff.

During the webinar, the attorneys pointed to good news for aviation contractors with respect to liability under FCA, an anti-fraud statute. For starters, they said, a 2015 Supreme Court case (Universal Health Services, Inc. v. United States ex. rel. Escobar) has led to a tougher standard for plaintiffs seeking to pursue FCA claims. "The Supreme Court ruled that plaintiffs in these cases need to show materiality," Stolarz said. "Minor misrepresentations—technical violations that would not actually affect whether the government paid a particular contract—may not meet that more rigorous threshold."

Thanks to the ruling, liability no longer lurks behind all disclosed FCA violations. "The FCA landscape used to be a bit like the Wild West," Stolarz said. "Escobar is a major shift that has led to the reversal of significant awards."

The majority of FCA enforcement actions target healthcare companies. But total FCA recoveries for non-healthcare contractors, including in the aviation sector, have also been dropping, the attorneys said. "Outside of healthcare, contractors paid $220 million in FCA penalties in 2017, but that dropped to about $100 million last year," Stolarz noted. In addition, changes in the regulatory environment also stand to benefit aviation stakeholders. "U.S. Attorney General William P. Barr has called the FCA unconstitutional and 'an abomination,' and the so-called DOJ Granston Memo essentially directs government lawyers to act as gatekeepers and stay out of meritless FCA lawsuits," Stolarz explained. "Since 2017, in fact, DOJ has moved to dismiss two dozen cases."

Finally, DOJ officials have clarified how contractors can receive credit for cooperating in FCA matters. "If you get any hint or whiff that there's an issue, you can launch an internal investigation—a 'timely self-analysis' in DOJ parlance—and show a good-faith response," Dombroff explained. "By voluntarily disclosing wrongdoing, identifying individuals involved and following the overall DOJ road map for cooperation, you stand a chance of substantially reducing any penalties in the case and of maintaining your standing as a trustworthy contractor."

Zimolzak and Janicki also provided an in-depth look at the entire process of government contracting in aviation, including basic considerations and special concerns; the federal acquisitions process; quality-control programs, procedures and pitfalls; and the gamut of considerations related to bid disputes.

"Contracting is critical in aviation because virtually all parts of the industry—airlines, air cargo operators, manufacturers, you name it—touch, deal with or enter into government contracts in some way," Dombroff noted. "For any aviation company, it is important to understand the process and track its ongoing evolution."

The slide deck and recording of the webinar are available free of charge.