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FCA Qui Notes
July 1, 2021

Nothing Personal: Southern District of New York Dismisses FCA Suit Against Foreign Entity on Personal Jurisdiction Grounds

Qui Notes: Unlocking the False Claims Act

The Southern District of New York went back to basics in dismissing a relator’s False Claims Act suit last month, relying on legal grounds not common in FCA litigation: lack of personal jurisdiction under the Due Process Clause of the Fifth Amendment. In U.S. ex. rel. TZAC, Inc. v. Christian Aid, No. 17-CV-4135 (PKC), 2021 WL 2354985, at *1 (S.D.N.Y. June 9, 2021), the court found that the relator failed to allege sufficient minimum contacts to establish personal jurisdiction over Christian Aid, a foreign corporation that had received grant funds from USAID. The decision serves as a reminder for litigators to ensure that bar-exam basics are satisfied before focusing on the merits of any False Claims Act matter.

The facts of TZAC’s FCA claims were straightforward. Defendant Christian Aid is a United Kingdom-based charitable organization that received grants from USAID in 2016 and 2017. To obtain the grants, Christian Aid submitted affirmations that it had not provided “material support or resources” to any entity considered a terrorist organization by the United States government. Relator TZAC, Inc. alleged those representations were fraudulent, claiming that, in 2015, Christian Aid sponsored a vocational training course in Lebanon that was performed by an entity designated by the United States as a “Specially Designated Global Terrorist” since February 2007. TZAC alleged that Christian Aid was, at a minimum, reckless with respect to its knowledge of the status of the entity performing the training course, and was thus liable under the FCA on the more than $26,000 in grants it received.

Christian Aid sought dismissal on a number of grounds, including that the court lacked personal jurisdiction over it, arguing that it is based in the UK and the relevant contracts were executed in London and Nairobi. TZAC argued that the False Claims Act’s authorization of nationwide service of process meant that the court’s inquiry should consider Christian Aid’s contacts with the United States more generally, and it had alleged sufficient contacts between Christian Aid and the nation as a whole.

The court found that TZAC’s service of process was statutorily sufficient for purposes of the FCA, but that Christian Aid’s US-based activities were insufficient to establish general or specific personal jurisdiction under the Second Circuit’s precedent regarding the Due Process Clause. TZAC’s only allegations regarding Christian Aid’s contacts with the New York forum were that Christian Aid’s leadership had taken occasional business trips to New York, that Christian Aid belonged to a group of charitable organizations with an office in New York, and that it had established a separate New York-based nonprofit. The court found that this fell well short of the “constant and pervasive” contacts necessary to establish general jurisdiction. It further found that these allegations were unrelated to the suit at hand, and that language in Christian Aid’s affirmations stating that “the United States will have the right to seek judicial enforcement of these assurances” did not function as a forum-selection clause. Thus, TZAC could not establish specific jurisdiction either.

To be certain, the S.D.N.Y.’s decision did not plow new ground with respect to the False Claims Act. But the outcome of the case nevertheless seems counterintuitive; is it really possible that a contractor who received funds from the US government while allegedly committing a fraud has not directed its activities at the United States? For now, the Southern District says that is the case. Thus, TZAC reminds us that the key to dismissing a relator’s FCA suit may be buried in one’s notes from first-year civil procedure.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.