Allowable Legal Costs

Allowable Legal Costs by Darrell Oyer, Darrell J. Oyer & Co: 

The U.S. Court of Appeals for the Federal Circuit has affirmed a Civilian Board of Contract Appeals ruling that Boeing Co. (successor in interest to Rockwell International Corp) could recover costs related to its defense of a False Claims Act (FCA) lawsuit [Chu v. Boeing Co., Fed. Cir., No. 2011-1304, -1317]

In 1989, a relator brought an FCA lawsuit in U.S. District Court alleging that Rockwell had false claims and statements regarding certain environmental matters.  A jury awarded the plaintiff a $4.1 million judgment that a Circuit Court affirmed. However, the Supreme Court found that the District Court lacked jurisdiction to enter judgment in favor of the relator because the relator was not an original source under the FCA.


Rockwell requested reimbursement for the cost of defending this lawsuit, but the contracting officer denied the claim. Rockwell appealed to the Board.  The Board ruled that Boeing could recover Rockwell’s defense costs related to the FCA lawsuit from the time the relator filed it in 1989 until the government sought to intervene in 1995. The Board said Rockwell’s legal expenses before the government moved to intervene were incurred to defend claims for which the company was not found liable. Both parties appealed.

According to this Court ruling, the Board correctly determined that costs relating to fraud claims where the government was successful were unallowable, whereas costs relating to claims where Rockwell was successful were allowable. The Court examined a contract clause related to reimbursement of costs incurred in defending claims related to environmental, safety and health activities. It also looked at the clause that disallowed costs incurred in defense of civil or criminal proceedings.  According to the Court, the Board’s narrow reading of the latter clause was necessary to avoid conflict with the environmental costs clause, which had an explicitly broad scope.

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