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Volume XI, Number 136

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Federal Judge in Texas Rules That Lying About Eligibility For 8(a) Business Development Program Violates False Claims Act; Whistleblower’s Qui Tam Case Can Move Forward

Another court has joined the growing chorus of judges who are singing the same tune on set-aside fraud:  when a government contractor lies about its eligibility for a set-aside contract, it violates the False Claims Act, and can be sued by either the Department of Justice or a whistleblower.

The new case is United States ex rel. Montes v. Main Building Maintenance Inc., and the decision was issued on December 22, 2020, by Judge Jason Pulliam of the Western District of Texas.  This is a qui tam case brought under the False Claims Act by a whistleblower, or “relator” as it’s called under that statute.  The relator alleges that two parents, Robert and Elvira Ximenes, created a company, JXM, to bid on government contracts reserved (or, in technical terms, “set aside”) for contractors that qualified for the so-called “8(a) Business Development program” for small businesses that are owned by “socially and economically disadvantaged people or entities.”  To qualify for such set-aside contracts, the business must first be “certified” as eligible by the Small Business Administration (SBA).  And to be eligible for such certification, the business must make a series of representation to SBA about who both owns the business, and who controls the business.  According to the allegations in this case, the problem that Robert and Elvira faced is that if they owned or controlled JXM, then JXM would not qualify under the 8(a) program.  Their solution?  They told SBA that the business as owned and controlled by their daughter, Margaux.  This wasn’t true: although Marguax had the title of CEO, in fact Robert and Elvira made all the decisions for the company, and controlled the company’s money.  But SBA didn’t know that, and went ahead and “certified” JXM as 8(a) eligible.  Subsequently, JXM bid on and won government contracts that were set-aside under the 8(a) program.

Simple case, right?  JXM wasn’t actually eligible for the contracts, but lied and won them anyhow, so JXM should now have to give back the money.  Seems obvious.

And yet, defense lawyers keep trying.  Here, they argued that actual qualification for the 8(a) program is not a “condition of payment” under contracts awarded under that program.  In other words, the argument is that, “yeah, maybe my client should never have gotten this contract in the first place, but hey, once my client tricked the government into awarding the contract, the government could not refuse to pay my client.”

Add Judge Pulliam to the list of federal judges who in recent years have heard variations on this argument, and are having none of it.  As Judge Pulliam explained in his ruling, “accepting the allegations as true, as the Court must, every time Defendants bid on contracts set aside for 8(a) Program participants and submitted claims for payment on the contracts awarded, they perpetuated the fraud that induced the SBA to approve their participation in the Program.”  On that basis, he denied the defendants’ motion to dismiss the case, which will now proceed into discovery and eventually to trial.

This decision is more good news for the government, and for whistleblowers who expose fraud by government contractors who bid on set-aside contracts.  The reasoning that carried the day in this decision in Montes applies with equal force to other set-aside programs, such as the women-owned small business (WOSB) program, the service-disable veteran-owned small business (SDVOSB) program, the HUBZone program, or just plain old small business set-aside contracts.  Court rulings like these make future set-aside fraud cases easier to bring and win.  And the False Claims Act already offers very significant incentives for whistleblowers to bring qui tam cases:  a successful qui tam whistleblower receives between 15% and 30% of the money won for the government.  The combination of those incentives, and the ongoing string of favorable judicial rulings, means that we will continue to see more and more cases brought in which various forms of set-aside fraud are alleged.  The hope, and the goal, is for these cases to help clean up a government contracting system that is easy to cheat, and rife with fraud.

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© 2021 by Tycko & Zavareei LLPNational Law Review, Volume X, Number 366
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About this Author

Jonathan K. Tycko,Civil Litigation Attorney, Tycko Zavareei Law firm Washington DC
Partner

Mr. Tycko has represented clients in numerous qui tam whistleblowing cases, in areas including Medicare fraud, government contracts fraud, and tax fraud. In addition, with the 2010 passage of the Dodd-Frank Act, Mr. Tycko’s practice has expanded into representation of whistleblowers in the areas of securities and commodities, and violations of the Foreign Corrupt Practices Act.

Mr. Tycko focuses his practice on civil litigation, with special concentrations in whistleblower cases, consumer class actions, unfair competition litigation, employment litigation and housing litigation. He...

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