Fifth Circuit Appeals Court Finds Defense Contractor Liable for Kickbacks from Freight Forwarders
The 5th U.S. Circuit Court of Appeals found defense contractor Kellogg Brown & Root liable for penalties resulting from kickbacks paid by employees of two freight forwarders to win and maintain federal subcontracts. The decision reverses the Eastern Texas U.S. District Court’s finding that double penalties for knowing violations of the Anti-Kickback Act by employees don’t vicariously apply to the employer.
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Employees of EGL and Panalpina had between 2002 and 2006 paid bribes to a KBR employee to win and maintain subcontracts from KBR related to KBR’s federal contract to transport military equipment to Iraq, Kuwait and Afghanistan, the appeals court said. The government joined a whistleblower suit seeking civil penalties under the Anti-Kickback Act. Section 55(a) of the Anti-Kickback Act mandates civil penalties of twice the amount of each kickback, up to a maximum of $11,000 for each occurrence, for the “person” that knowingly engaged in the prohibited conduct.
KBR argued it wasn’t liable for the misdeeds of its employee that received the kickbacks, because Section 55(a) doesn’t vicariously apply to the company, but only the employee that engaged in misconduct. The district court agreed, finding that a reading where Section 55(a) applies to companies would make irrelevant language in Section 55(b) that applies civil penalties of one times the value of the kickback to the employer for violations by its employees. But the 5th Circuit reversed the district court’s finding, finding Section 55(a) can apply to companies as well. The distinction between the two sections comes from whether the violation was committed with knowledge, and not whether the person involved was an individual employee or a company, it said.
(U.S. v. Kellogg Brown & Root, Incorporated; 5th Circ. No. 12-40447, dated 07/19/13)