Wednesday, December 7th, 2022

Scollick v. Narula False Claims Act Case Replace


This submit is a part of a sequence sponsored by IAT Insurance coverage Group.

Disclaimer:

This text shouldn’t be used as authorized recommendation. All events ought to seek the advice of authorized counsel of their alternative and search professional recommendation on authorized and compliance points.

The July 2017 resolution in United States ex rel. Scollick v. Narula[1] (Scollick), decided that sureties and surety brokers could possibly be held liable underneath the False Claims Act (FCA) for bonding a fraudulent put aside contractor. The criticism alleged {that a} bigger contractor arrange a sham firm, supposedly owned and operated by a service-disabled veteran, however really managed by the bigger contractor to illegally bid on service-disabled veteran-owned small enterprise (SDVOSB) contracts from the federal authorities. Though the 2017 Scollick opinion was determined on the pleading stage and due to this fact didn’t discover any occasion liable, it was the primary resolution to carry {that a} surety may face potential FCA legal responsibility for bonding a fraudulent put aside contractor.

5 years later, on July 29, 2022, all claims towards the surety defendants in Scollick v. Narula[2] had been dismissed on abstract judgment. Within the 2022 Scollick opinion, the choose discovered no proof that the surety defendants knew of the SDVOSB necessities or supposed to deceive the federal government. With out such proof, the whistleblower couldn’t show that the surety defendants knew or ought to have recognized that the bonded contractors’ statements to the federal government had been false as required for FCA legal responsibility.

The choose additionally discovered that the sureties and agent weren’t required to know the federal government rules relating to disabled veteran or different put aside applications as a result of sureties didn’t take part in them, reasonably the contractors did. Due to this, the surety defendants may depend upon the federal government’s certification that the bonded contractors met federal put aside program necessities.

The query is: What does this imply for sureties?

No “Free Cross” for Sureties that Bond Federal Set Apart Contractors

The potential for FCA claims towards sureties is now public information and the problem is not going to go away any time quickly. This current resolution in favor of the surety defendants is barely the newest chapter in a sequence of ongoing developments. Right here’s what you should know.

Is the Scollick resolution closing?

No. For the reason that resolution was made on the trial court docket stage, it could possibly be overturned on attraction after the case towards the remaining defendants goes to trial. In actual fact, the whistleblower’s attorneys already famous that they plan on interesting the choice.[3]

Might sureties nonetheless be sued in related circumstances?

Sure. The choose’s resolution doesn’t absolve a surety that is aware of the contractor its bonding is defrauding the federal government. So, if the whistleblower had supplied proof that the sureties and the agent knew that the contractors had been mendacity about their {qualifications} to bid on the topic tasks, there would have been a distinct final result.

Does it matter who certifies a put aside contractor?

Sure. Within the Scollick case, the Veterans Administration licensed that the contractor was a legitimate SDVOSB contractor, and the court docket discovered that the sureties may depend upon the federal government’s certification. The choice may have been totally different if a contractor self-certified that it was certified to work on a federal put aside program.

Is the choice binding on different courts?

No. The Scollick resolution just isn’t a binding precedent on different federal courts, which suggests it doesn’t need to be adopted by different courts.

What can sureties and surety brokers do to guard themselves from potential FCA legal responsibility for bonding a put aside contractor that seems to be fraudulent?

Regardless of the ruling in Scollick that sureties should not obligated to be conversant in the necessities of federal put aside applications, it’s nonetheless advisable that sureties have sufficient information relating to federal put aside necessities to be alert to “pink flags” indicating that the account is probably not a legitimate put aside contractor and keep away from bonding such contractors.

For extra info on the best way to defend your self from FCA threat and guarantee compliance with new legal guidelines, rules and different necessities, contact the IAT crew.

For a extra full authorized evaluation, go to this hyperlink.


[1] United States District Court docket for the District of Columbia “UNITED STATES OF AMERICA, ex. Rel. ANDREW SCOLLICK, Plaintiff-Realtor, v. VIJAY NARULA, et. al., Defendants,” July 31, 2017.

[2] Casetext “Scollick ex. rel. United States v. Narula,” July 29.2022.

[3] Law360 “Insurers Escape FCA Legal responsibility For Bonding Building Co.” July 20, 2022.

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