Scollick v. Narula False Claims Act Case Replace

This publish is a part of a collection sponsored by IAT Insurance coverage Group.


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

The July 2017 choice in United States ex rel. Scollick v. Narula[1] (Scollick), decided that sureties and surety brokers might be held liable underneath the False Claims Act (FCA) for bonding a fraudulent put aside contractor. The grievance alleged {that a} bigger contractor arrange a sham firm, supposedly owned and operated by a service-disabled veteran, however truly 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 choice 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 in opposition to the surety defendants in Scollick v. Narula[2] have been dismissed on abstract judgment. Within the 2022 Scollick opinion, the decide discovered no proof that the surety defendants knew of the SDVOSB necessities or meant 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 have been false as required for FCA legal responsibility.

The decide additionally discovered that the sureties and agent weren’t required to know the federal government laws concerning disabled veteran or different put aside packages as a result of sureties didn’t take part in them, moderately the contractors did. Due to this, the surety defendants may rely on 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 Go” for Sureties that Bond Federal Set Apart Contractors

The potential for FCA claims in opposition to sureties is now public data and the problem won’t go away any time quickly. This current choice in favor of the surety defendants is just the newest chapter in a collection of ongoing developments. Right here’s what it’s essential know.

Is the Scollick choice closing?

No. Because the choice was made on the trial court docket degree, it might be overturned on enchantment after the case in opposition to the remaining defendants goes to trial. In reality, the whistleblower’s attorneys already famous that they plan on interesting the choice.[3]

Might sureties nonetheless be sued in comparable circumstances?

Sure. The decide’s choice doesn’t absolve a surety that is aware of the contractor its bonding is defrauding the federal government. So, if the whistleblower had offered proof that the sureties and the agent knew that the contractors have been mendacity about their {qualifications} to bid on the topic tasks, there would have been a unique end 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 rely on 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 choice just isn’t a binding precedent on different federal courts, which implies it doesn’t should 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 usually are not obligated to be conversant in the necessities of federal put aside packages, it’s nonetheless really helpful that sureties have sufficient data concerning federal put aside necessities to be alert to “purple flags” indicating that the account might not be a legitimate put aside contractor and keep away from bonding such contractors.

For extra data on defend your self from FCA threat and guarantee compliance with new legal guidelines, laws and different necessities, contact the IAT team.

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

[1] United States District Courtroom 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 Liability For Bonding Construction Co.” July 20, 2022.


Fascinated about Claims?

Get automated alerts for this matter.