Joe Whitcomb
In United States v. Strock, the Second Circuit reviewed allegations that William Strock and his company, Strock Contracting, LLC, defrauded the federal government by misrepresenting eligibility for contracts set aside for service-disabled veteran-owned small businesses (SDVOSBs). The appeal focused on whether the False Claims Act (FCA) applied to allegedly fraudulent conduct that occurred prior to the submission of formal contract claims.
Background on Contracting and Certifications
Strock Contracting, LLC pursued contracts under the SDVOSB program, which reserves certain government contracts for businesses owned and controlled by service-disabled veterans. The government alleged that William Strock, a non-veteran, used a service-disabled veteran as a figurehead owner to falsely obtain SDVOSB certification and win set-aside contracts from the U.S. Army Corps of Engineers.
The complaint claimed that although Strock formally submitted contract applications and claims for payment, the underlying fraud began much earlier—during the certification process and in the preparation of bid documents. The government asserted that these misrepresentations violated the FCA by resulting in payments on fraudulently obtained contracts.
Strock moved to dismiss the complaint, arguing that pre-award misrepresentations made during the certification or bidding process were not actionable under the FCA because they were not "claims for payment" under the statute.
Appellate Review and Ruling
The Second Circuit disagreed with Strock’s interpretation. The court held that the FCA can reach fraudulent schemes that begin before a formal claim is submitted if the scheme is designed to result in a false claim for payment. It found that the misrepresentations about SDVOSB eligibility were intended to cause the government to disburse funds under the contracts, thereby connecting the fraudulent conduct to eventual claims.
The court explained that a claim under the FCA includes not just direct requests for payment, but also "false records or statements material to a false or fraudulent claim." Misrepresenting ownership and control to gain contract eligibility under the SDVOSB program, the court reasoned, satisfied this standard.
The court also rejected Strock’s argument that the certification process itself was too attenuated from payment to trigger FCA liability. Instead, it emphasized that the entire purpose of SDVOSB certification is to secure access to set-aside federal funds. Thus, knowingly submitting false eligibility information during this process can support FCA claims if payment later results.
Case Allowed to Proceed
Based on these findings, the Second Circuit reversed the district court’s dismissal and remanded the case for further proceedings. The ruling allowed the government’s FCA claims to move forward, permitting the case to proceed toward discovery or trial.
Legal Support for SDVOSB Certification and Compliance
Navigating eligibility requirements in the SDVOSB program can be complex. Our team at Whitcomb, Selinsky, PC helps small businesses comply with federal contracting regulations and address challenges related to certification, ownership, and program eligibility.