A precedent-setting False Claims Act (FCA) lawsuit initially filed in 2014 by whistleblower Andrew Scollick, will proceed in Federal court. Mediation was unsuccessful. A trial date is pending the requested ruling by the parties on the various motions before the court.
The qui tam lawsuit filed in the U.S. District Court of Washington D.C. against 18 defendants for violations of the FCA in connection with applying for government construction contracts by obtaining Service Disabled Veteran Owned Small Business (SDVOSB) status, HUBZone status, or Section 8(a) status, when the bidders did not qualify for the statuses claimed.
Case background: What you need to know
Scollick v. Narula alleges that a multi-million dollar scheme existed to systematically deny SDVOSB owners contracts.
This case was unique in that Scollick also named as defendants the insurance broker who helped secure the bonding that was required for the contractor defendants to bid in order to receive the contracts.
The court initially dismissed the surety defendants and Scollick amended his complaint alleging that the insurance companies “knew or should have known” that the bonded contractors did not qualify as SDVOSB businesses. The bonding companies should have known that the construction companies were shell companies fronting for larger non-veteran owned entities that violated the government’s contracting requirements.
Two contracting firms were named as working in conjunction with two large surety bonding companies, Hudson Insurance Company and Hanover Insurance Company, to qualify for $12.5 million in SDVOSB set-aside contracts from the Veteran Administration (VA).
In a second opinion filed in July 2017, the U.S. District Court extended federal FCA liability to bonding companies who have reason to know that they bonded construction firms who falsified their SDVOSB status. This has been described as a is a stunning reversal.
A ‘stunning’ reversal
Scollick’s qui tam whistleblower lawsuit expanded the scope of FCA liability by establishing the legal precedent that bonding companies can be held liable for triple the damages for issuing surety bonds to construction companies that falsely claim SDVOSB status.
Scollick’s attorney, Michael Kohn, has noted that the surety bond provided to the contractors should guarantee material terms of work. And in the Narula case, the sureties knew from the outset that contract terms would not be carried out.
In his reply to the lawsuit, Mr. Narula denied the key allegations against him. He claimed any damages to Scollick or the U.S. were “caused by a person” over whom he had no control.
The complaint was filed by whistleblower Andrew Scollick on behalf of the United States government. FCA whistleblowers can collect a reward of up to 30% of the total amount of recovery, plus legal fees.
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