United States v. R.J. Zavoral & Sons, Inc.
894 F. Supp. 2d 1118
D. Minnesota2012Background
- Joint Venture between Zavoral & Ed’s Construction for a COE contract under SBA 8(a) program; Ed’s Construction is the 8(a) concern, Zavoral is not.
- JV Agreement dated April 1, 2004 requires Ed’s Construction to provide majority work and 51% of profits; Ed’s to manage and submit quarterly SBA reports.
- COE contract eligible bidders only if SBA determines 8(a) compliance; SBA approved the JV based on representations in JV Agreement.
- Allegations claim Defendants fraudulently concealed noncompliance with 8(a) requirements and manipulated payments/records; Ed’s Construction allegedly excluded from project.
- Defendants allegedly used pass-through costs and leased employees to misrepresent compliance, while Ed’s Construction was deprived of its expected role and profits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Rule 9(b) sufficiency of fraud pleading | Government contends it identified who, what, where, when, how for each defendant | Defendants claim lack of specificity tying statements to individuals | Counts I, II, and V pled with sufficient particularity |
| FCA claims viability under pre- or post-FERA law | Government argues pre-FERA suffices and also supports post-FERA retroactivity | Defendants contend retroactivity issues and wrong application | FCA claims pled sufficiently under pre-FERA framework at this stage |
| FIRREA liability for false statements to obtain value | Schemes show intent to mislead SBA to obtain contract and payments | No explicit facts showing intent to obtain money through false statements | FIRREA claim viable at this stage |
| Breach of contract claim viability | Joint Venture violated contract terms by undermining 8(a) requirements | Joint Venture allegedly complied; defense cites parent-interference privilege | Breach of contract claim survives insofar as liability not barred at pleadings stage |
Key Cases Cited
- Bank of Montreal v. Avalon Capital Grp., Inc., 743 F.Supp.2d 1021 (D.Minn.2010) (requires specific notice of misconduct and elements to plead fraud)
- First Presbyterian Church of Mankato, Minn. v. John G. Kinnard & Co., 881 F.Supp. 441 (D.Minn.1995) (fraud pleading standards; notice to prepare defense)
- United States v. Science Applications Int'l Corp., 626 F.3d 1257 (D.C.Cir.2010) (implied certifications can support false-claims theory)
- Hopper v. Solvay Pharms., Inc., 588 F.3d 1318 (11th Cir.2009) (retroactivity of FCA amendments debated)
- United States v. Hawley, 619 F.3d 886 (8th Cir.2010) (retroactivity questions under FERA)
- Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2d Cir.2010) (retroactivity of FCA amendments to cases)
- Yannacopoulos v. Gen. Dynamics, 652 F.3d 818 (7th Cir.2011) (retroactivity of FCA amendments to cases)
- Steury v. Cardinal Health, Inc., 625 F.3d 262 (5th Cir.2010) (retroactivity of FCA amendments to cases)
- Applied Pharm. Consultants, Inc., 182 F.3d 603 (8th Cir.1999) (unjust enrichment/related remedies alongside FCA)