United States v. Strock: 2nd Circuit Revives False Claims Act Case Over SDVOSB Fraud

The United States filed a civil action against Strock Contracting, Inc. and its owner, Timothy Strock, alleging violations of the False Claims Act (FCA) and related statutes. The government claimed that Strock and his company fraudulently obtained contracts reserved for service-disabled veteran-owned small businesses (SDVOSBs) by misrepresenting eligibility. The contracts at issue were awarded through federal procurement programs designed to provide contracting preferences to SDVOSBs.

According to the complaint, from 2006 to 2013, Strock Contracting represented itself as an SDVOSB with a service-disabled veteran as the majority owner and controller of the business. The government alleged that the veteran in question did not, in fact, exercise control over the company’s day-to-day operations or long-term decision-making. Instead, Timothy Strock managed and operated the business while using the veteran’s status to qualify for set-aside contracts.

The contracts included construction and maintenance projects for federal agencies, valued in the millions of dollars. The government asserted that the defendants submitted false certifications to the Small Business Administration (SBA) and contracting agencies, thereby causing the agencies to award contracts they would not have otherwise granted.

District court dismissed FCA claims

The U.S. District Court for the Western District of New York dismissed the government’s FCA claims, holding that the alleged misrepresentations about SDVOSB status were not actionable under the FCA because they related to eligibility rather than to the goods or services delivered under the contracts. The court reasoned that the government had not alleged that the work performed was deficient or that the invoices were false in the traditional sense.

The district court also dismissed claims under the common law theories of unjust enrichment and payment by mistake, finding that the allegations did not sufficiently establish that the defendants had received payments to which they were not entitled.

Second Circuit reversed in part

On appeal, the U.S. Court of Appeals for the Second Circuit reversed the dismissal of the FCA claims. The appellate court held that misrepresentations about SDVOSB eligibility can be material under the FCA if they influence the government’s payment decision, even if the contracted work is performed satisfactorily. The court emphasized that compliance with eligibility requirements is a condition of payment for set-aside contracts.

The Second Circuit concluded that the complaint plausibly alleged that the defendants knowingly misrepresented eligibility, that these misrepresentations were material to the government’s decision to award and pay the contracts, and that the conduct fell within the FCA’s prohibition on fraudulent claims. The court remanded the case for further proceedings on the FCA counts.

The appellate court affirmed the dismissal of the unjust enrichment and payment by mistake claims, finding that the government had not adequately alleged independent bases for those claims apart from the FCA allegations.

Final outcome

The Second Circuit reinstated the FCA claims against Strock Contracting and Timothy Strock, allowing the government to proceed with its allegations that the defendants fraudulently obtained SDVOSB set-aside contracts.

Help with government contracting fraud allegations

If your company is facing allegations involving SDVOSB eligibility, set-aside programs, or compliance with federal contracting requirements, Whitcomb, Selinsky PC handles cases involving procurement fraud defense, FCA litigation, and government eligibility disputes. Reach out to schedule a consultation and learn how our team can assist with your case.