The False Claims Act &
Reverter Clauses
In
a case of nationwide first impression, the U.S. Court of Appeals for the Sixth
Circuit has construed the recently amended scienter requirement of the False
Claims Act, 31 U.S.C. § 3729(a)(1)(G).
As luck would have it, the opportunity arose out of an alleged breach of a
reverter provision in a deed. U. S. A. ex rel. Harper v. Muskingum Watershed Conservancy District, No. 15-4406 (6th Cir., Nov. 21, 2016).
In 1949, the United States deeded a large
parcel of land in Ohio to the Muskingum Watershed Conservancy District (“MWCD”).
The deed provided the land would revert to the U. S. if MWCD alienated or
attempted to alienate it, or if MWCD stopped using the land for recreation,
conservation, or reservoir-development purposes. MWCD subsequently gave leases
for fracking operations on the land. Fracking opponents discovered the deed
restrictions and, believing the leases triggered the reverter, filed an action
against MWCD under the False Claims Act, alleging that MWCD was knowingly withholding
United States property from the federal government.
The
Court held that under the newly-added requirement,
“the term 'knowingly' must be interpreted to refer to a defendant’s awareness
of both an obligation to the United States and his violation of that
obligation.” Because the complaint failed to allege facts that create the
inference that MWCD knew that the relevant deed restrictions required it to
deliver property to the United States, and that it “act[ed] in deliberate
ignorance” or in “reckless disregard” of that obligation, the complaint was
properly dismissed.
Comment:
Not discussed in the opinion is that the plaintiff’s claim presumed the
reverter provision required MWCD to affirmatively convey the property to the
federal government. Reverter clauses are typically self-executing and legal
disputes usually concern whether the facts are sufficient to trigger the
reverter contingency. The Harper opinion notes “after considering whether
to involve itself in the [instant] action, the United States declined to intervene.”
It was clear the federal government had not attempted to recover possession or
otherwise clear its title pursuant to the reverter. Under these circumstances,
it was far from certain MWCD had any obligation to “transmit property to the Government.”