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Don’t Get Bullied By The Government, Use Your “Illegal Exaction” Claim
Have you ever had the situation where you felt like you were compelled to pay money to the federal government as a result of an unfair or unreasonable interpretation or application of a statute or regulation, imposition of an unlawful regulation or other governmental action based on questionable authority? Take heart, you may have a claim for an “Illegal Exaction.” The Tucker Act (28 U.S.C. § 1491(a)) authorizes a claim against the government for Illegal Exaction, in which the plaintiff has paid money over to the government, directly or in effect, and seeks return of all or part of that sum. An “Illegal Exaction” involves money that was improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a statute, or a regulation. Essentially, an Illegal Exaction involves a deprivation of property without due process of law, in violation of the Due Process Clause of the Fifth Amendment to the Constitution. The classic example of such a claim is a tax refund suit alleging that taxes have been improperly collected or withheld by the government. Other examples include: (i) where the government illegally collected fines from a plaintiff under convictions and sentences that were later voided; (ii) where a ship owner was illegally required to make a payment exacted as a condition of receiving permission to sell the ship to a foreign purchaser; (iii) the collection of money by government officials, pursuant to an invalid regulation; (iv) when a government agent construes a statute as remaining in effect after it has been repealed and uses it as a basis to collect fees. Under an Illegal Exaction claim, the amount exacted and paid may be recovered whether the money was paid directly to the government, or was paid to others at the direction of the government ostensibly to meet a governmental obligation.
A recent example of an Illegal Exaction claim can be found in the case of Boeing Co. v. United States, 968 F.3d 1371 (Fed. Cir. Aug. 10, 2020). For decades the Boeing Company has entered into numerous contracts with the United States Department of Defense. In 2011, Boeing permissibly changed multiple cost accounting practices simultaneously. Some of the changes raised costs to the government, whereas others lowered costs to the government. In late 2016, the Defense Contract Management Agency, invoking Federal Acquisition Regulation (FAR) 30.606 (48 C.F.R. § 30.606), determined the amount of the cost-increasing changes for Boeing’s present contract and demanded that Boeing pay the government that amount plus interest. Boeing began doing so.
However, in 2017, Boeing filed an action in the Court of Federal Claims to seek recovery of the amounts that it paid, asserting that the government, in following FAR 30.606, committed a breach of contract and effected an Illegal Exaction. Boeing’s core argument, applicable to both claims, was that, although FAR 30.606 undisputedly required the Defense Department to act as it did, that regulation was unlawful—principally because it was contrary to 41 U.S.C. § 1503(b). According to Boeing, § 1503(b) of the Cost Accounting Standards statute, which was incorporated into the contract at issue, required that simultaneously adopted cost-increasing and cost-lowering changes in accounting practices be considered as a group, with the cost reductions offsetting the cost increases. Boeing argued that, by following FAR 30.606’s command to disregard the cost-lowering changes and bill Boeing for the cost-increasing changes alone, the government unlawfully charged it too much. Denying a motion to dismiss, the Court agreed that Boeing had sufficiently stated a claim for Illegal Exaction and that the Court of Federal Claims had jurisdiction over the claim under the Tucker Act. Contact our Government Contracts Practice Group if you need help getting money back from the government under an Illegal Exaction claim.