Jason Smith and Teddie Arnold, partners in Seyfarth’s Washington, DC office, have co-authored an updated “United States – Construction” chapter in the 2024 edition of The Legal 500: Country Comparative Guides. Seyfarth continues to participate as an exclusive contributor for this comprehensive overview of construction-specific laws and regulations in the United States. Topics covered
Edward (Teddie) Arnold
Fraud and Forfeiture: Cautionary Tales of a Construction Claim Gone Wrong
In Lodge Construction, Inc. v. United States, the US Court of Federal Claims (“COFC”) prefaced its 46-page opinion by stating: “This case should serve as a cautionary tale to government contractors.”[1] Our ears perk up any time we read that kind of admonition in a published decision. The Lodge holding is, indeed, loaded with lessons on what to do, and what not to do, when presenting Contract Disputes Act (“CDA”) claims to the government. In particular, federal construction contractors and their performance bond sureties should take heed of the court’s holding in this highly-illustrative fraud case.
Background of the case
In 2010, the Army Corps of Engineers (“Government”) awarded Lodge Construction (“Lodge”) a fixed-price contract to rehabilitate a levee in Florida. To accommodate subsurface work, Lodge designed and constructed a temporary cofferdam based on a geotechnical site inspection and analysis furnished by the Government. The Government accepted Lodge’s final cofferdam design in July 2011. In March 2012, however, water breached two sections of the cofferdam’s sheet pile wall, after which the Government retroactively disapproved of Lodge’s cofferdam design. The Government requested that Lodge submit a new sheet pile design by May 29, 2012.
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Surety Liability Under the False Claims Act
The federal Miller Act requires government construction contracts over $100,000 to be bonded. This process involves insurance companies, known as “sureties,” who issue payment or performance bonds to contractors, who in turn furnish the required bonds to the federal government. The bonds guarantee that the contractor will comply with the terms of the contract and perform as required. Although the sureties do not interact directly with the federal government, a recent decision from the US District Court in DC suggests that sureties could face liability where the bonded contractor violates the civil False Claims Act (“FCA”), 31 U.S.C. § 3729. In Scollick ex rel. United States v. Narula, No. 1:14-CV-01339-RCL, 2022 WL 3020936 (D.D.C. July 29, 2022) the court held, under the facts of that case, that the sureties had no knowledge of the fraud allegedly committed by the bonded contractor, and thus did not violate the FCA. Although the sureties escaped in this instance, this case demonstrates the expansive reach of the FCA and puts the insurance industry on notice that they are not immune from FCA liability.
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Jason Smith and Teddie Arnold Author a Chapter in The Legal 500: Construction Country Comparative Guide
Jason N. Smith and Edward V. Arnold authored a chapter in The Legal 500: Construction Country Comparative Guide, “United States: Construction.” The Chapter provides a comprehensive overview of legal issues in the US construction industry. You can read Seyfarth’s chapter of this year’s guide here.
Seyfarth Government Contracts Attorneys to Present Government Contract Compliance Training for Federal Publications Seminars in La Jolla
On May 3, Seyfarth attorneys Teddie Arnold and Anthony LaPlaca are presenting a 1-day session on Government Contract Compliance as part of the Federal Publications Seminars’ Training Academy in La Jolla, California. Seyfarth attorneys Joe Dyer, Stephanie Magnell, and Bret Marfut will also be presenting remotely.
A substantive compliance program can reduce the chances that…
Seyfarth Construction and Government Contracts Teams Win Big for Municipality
CHALLENGE
The Port of Anchorage Intermodal Expansion Project was envisioned to be a $1 billion project that would replace outdated infrastructure at the Port of Alaska, but defective management, design, and construction derailed the Project. Seyfarth was tasked with prosecuting claims and recovering money spent by the Department of Transportation Maritime Administration (MARAD) for the…
Teddie Arnold and Stephanie Magnell Interviewed in a Federal Publications Seminars Podcast
Teddie Arnold and Stephanie Magnell spoke about government contractors protecting themselves from government fraud arguments in the February 25th Federal Publications Seminars Podcast “Avoiding Fraud in Federal Contract Claims.”
When contractors file claims against the government, they should make sure they are on solid ground to protect against government claims of fraud. Listen to the…
Fourth Circuit Adopts Objective Reasonableness Standard in Determining Scienter Element of the False Claims Act
The Fourth Circuit, in United States ex rel. Sheldon v. Allergan Sales, LLC, No. 20-2330, 2022 WL 211172 (4th Cir. Jan. 25, 2022) recently upheld the dismissal of False Claims Act (“FCA”) lawsuit brought by a quit tam relator (“Relator”) against his employer, Forest Laboratories, LLC (“Forest”) alleging that Forest engaged in a fraudulent price reporting scheme under the Medicaid Drug Rebate Statute (“Rebate Statute”).[1]
Notably, the Fourth Circuit adopted the US Supreme Court’s decision in Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) in holding that the scienter element of the FCA is subject to an “objective reasonableness” standard, where a defendant can defeat FCA liability by establishing that its interpretation of the applicable statute or regulation was objectively reasonable and that no authoritative guidance from a court or agency could have “warned defendant away” from that interpretation. Just last year, the Seventh Circuit adopted this standard in U.S. ex rel. Schutte v. SuperValu Inc., joining the Third, Eighth, Ninth, and DC Circuits in holding the same.
At issue in Sheldon was the reasonableness of Forest’s interpretation of the Rebate Statute in determining how it calculated certain discounts given to separate customers for purpose of reporting its “best price” to the government. The District Court dismissed the complaint on the basis that Forest’s reading of the Rebate Statute was “objectively reasonable,” there was no authoritative guidance to the contrary, and thus Forest did not act “knowingly” under the FCA. The Fourth Circuit affirmed.[2]
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Teddie Arnold to Moderate DII Panel on Small Business Ethics and Compliance
Seyfarth partner Teddie Arnold is moderating the “Enhancing Small Business Ethics and Compliance Efforts” panel for the Defense Industry Initiative’s (DII) first quarter webinar on Thursday, March 24 at 1:00 p.m. Eastern. The program will include a discussion of ethics and compliance risks and opportunities for small and mid-sized businesses, with perspectives from industry, experts,…
DOJ Reports False Claims Act Recoveries for Fiscal Year 2021
After reporting its lowest annual recovery from False Claim Act (“FCA”) cases in Fiscal Year (FY) 2020, the Department of Justice (“DOJ”) has reportedly bounced back. On February 1, 2021, DOJ released detailed statistics regarding FCA recoveries during FY 2021, during which DOJ reportedly obtained more than $5.6 billion in civil FCA settlements and judgments, of which $5 billion related to matters involving the health care industry. This follows what had been a significant decline from the high water mark in 2014 when DOJ recovered a record $5.69 billion, after which the number of dollars recovered had generally trended downward—2015 ($3.5 billion), 2016 ($4.93 billion), 2017 ($3.47 billion), 2018 ($2.9 billion), 2019 ($3 billion), and 2020 ($2.2 billion). DOJ reported recoveries in the form of settlements and judgments across various sectors including health care fraud, procurement fraud, COVID-related fraud, as well as a slew of other fraud including those involving oil and natural gas exploration, the FCC’s E-Rate program, federal funding for tutoring services, and FHA loan underwriting deficiencies. In addition, DOJ touted its cybersecurity initiatives, as well as its continued commitment to hold individuals accountable under the FCA.
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