Given the number of important government contracts decisions issued this year about fraud counterclaims, it is only fitting that the COFC issue another fraud counterclaim decision in the midst of the holiday cheer. As a follow-up to her Gulf Group General Enterprises decision, Judge Horn once again tackles the Department of Justice (“DoJ”) fraud-related counterclaims and affirmative defenses under the False Claims Act (31 U.S.C. § 3729), pre-FERA, and the Special Plea in Fraud statute (28 U.S.C. § 2514) in Chapman Law Firm, LPA v. United States, No. 09-981c. Weighing-in at 78 pages, this decision highlights how the tables turn in a litigation once the DoJ asserts such counterclaims and affirmative defenses – almost the entire focus of the decision shifts to these counterclaims and defenses which is a deeply factual inquiry. It also highlights one of the many reasons why it is critical that every government contractor maintain satisfactory compliance practices and procedures – e.g., to curb potential fraudulent acts that may result in the forfeiture of viable claims and a damages/penalty assessment against the contractor.
Specifically, Judge Horn determined that the contractor’s claims were forfeited under the Special Plea in Fraud Statute. Based on an implied representation theory, the court found clear and convincing evidence that the contractor “intended to deceive HUD into thinking that plaintiff had performed the working entitling plaintiff of payment under the parties’ contract.” Second, Judge Horn determined that the contractor violated the pre-FERA False Claims Act through “the knowing submission of fraudulent claims and the use of falsified inspection reports in support of fraudulent claims.” Not only was the contractor now liable to the Government for $44,000, but it also was required to pay the Government’s litigation costs.
During a time of utmost scrutiny in government contracts and as this case demonstrates, government contractors must have adequate compliance practices and procedures in place to stop any behavior that could provide the basis for a fraud counterclaim or affirmative defense. Otherwise, you run the unnecessary risk of having your holiday cheers turn into holiday jeers.