Judge Knocks Out KBR Counterclaim Over Iraq War Security Contracts

When the war in Iraq escalated, the military contractor Kellogg, Brown & Root (now KBR) hired private security firms to protect its high-level employees in the country, billing the U.S. government for the guards’ services. That didn’t sit well with lawyers at the Justice Department, who sued KBR under the False Claims Act for allegedly ignoring a contract requiring the company to rely on the military, not private firms, for employee protection.

KBR’s lawyers at Susman Godfrey and McKenna Long & Aldridge have been fighting the claims before both a federal district court judge and an armed services administrative law judge. The federal judge dealt KBR a loss on Monday, but an ALJ ruling from earlier in the month may soon help them defeat the case.

In a 13-page opinion issued on Monday, Washington D.C. federal district court Royce Lamberth dismissed a counterclaim for recoupment that KBR brought against the government. KBR’s lawyers had tried to diminish the government’s potential recovery under the FCA, arguing that KBR turned to private security firms only after the government breached its own contractual duty to protect the company’s employees in Iraq. Judge Lamberth dismissed the recoupment claim without prejudice, finding that KBR had failed to exhaust required administrative procedures. The judge also rejected, for the time being, the government’s argument that KBR’s claims involve a non-justiciable political question.

The DOJ sued under the FCA in 2010, alleging that KBR and more than 30 of its subcontractors knowingly filed false reimbursement claims with the government for the cost of their private security forces. The reimbursement claims were allegedly made indirectly, through overhead accounts.

KBR’s lawyers at Susman and McKenna Long countersued for recoupment, arguing that the government provided inadequate force protection to contractors in Iraq. Prosecutors replied by citing the little-used political question doctrine. The courts, they argued, should not be making determinations about whether the Army provided sufficient force protection to civilians. Judge Lamberth ultimately decided the motions on more limited grounds on Monday, finding that KBR could not bring the counterclaim until it exhausted its review before the Armed Services Board of Contract Appeals.

Lead KBR counsel Vineet Bhatia, a partner in Susman’s Houston office, told us that the counterclaim may soon be back in the case. Judge Lamberth’s opinion, he says, was based on incomplete information. “We have now exhausted our administrative remedies,” Bhatia told us. Late Tuesday Bhatia filed a 7-page response to the judge’s order stating exactly that and arguing that the court now had jurisdiction.

If Judge Lamberth does revive KBR’s recoupment claim, Susman may have a new path to victory. On April 3, an ASBCA judge interpreted KBR’s contract with the Army, ruling that “there is no categorical prohibition in the terms of the [contract] on the use of armed private security companies. . .to supplement the government force protection where necessary to accomplish the logistical support mission.”