The United States recently joined ongoing False Claims Act ("FCA") litigation that shows the potential for significant liability in government supply contracts. These contracts require the use of products made in the United States or in other designated countries, which notably do not include China or India.
The case is known as United States of America, ex. rel. Louis Scutellaro v. Capitol Supply, Inc., Case 1:10-cv-01094-BAH, and is pending in the United States District Court for the District of Columbia. The FCA allows a private party, known as a qui tam relator, to bring an action under the FCA on behalf of the United States. In this case, a private qui tam relator named Louis Scutellaro filed a complaint based on contracts that required vendors to comply and certify compliance with country of origin requirements under the Trade Agreements Act ("TAA"), the Buy American Act ("BAA"), and the American Recovery and Reinvestment Act ("ARRA"), as applicable. The case alleged that defendant Capitol Supply, Inc. sold and presented claims to the Government Services Administration ("GSA") regarding non-compliant products, including paper shredders, light bulbs, light fixtures, televisions, batteries, and vacuum cleaners.
By intervening in the case, the United States limited its participation to allegations regarding Fellows brand document shredders. In particular, its participation is limited to allegations that Capitol Supply, Inc. violated the FCA when it knowingly, or with reckless disregard or deliberate indifference of the truth, certified to GSA that its products were compliant with the TAA, the BAA, and the ARRA, and that GSA made payment based on false or fraudulent certifications as to the country of origin. The United States asserts that the Fellows brand document shredders were manufactured in China, a non-designated country. The United States also alleged that Capitol Supply, Inc. was unjustly enriched by receiving money to which it was not entitled.
The United States sought "three times the amount of damages the United States Government has sustained because of Defendant's actions," which is commonly referred to as treble damages, along with a civil penalty of $5,000 to $10,000 for each violation. Because the conduct at issue spans several years, the scope of civil penalties is substantial.
On May 6, 2013, defendant Capitol Supply, Inc. filed motions to dismiss all of the complaints in the case. Capitol Supply, Inc.'s filings shed light on both its business model and potential defense strategy, and that its government sales "are largely an automated process based on the data provided from various vendors," including country of origin. As a result, where "vendors provide Capitol Supply with data showing that products were manufactured in TAA-designated countries, and Capitol Supply has no information indicating otherwise, then those products are automatically offered for sale to the Government, with no individuals at Capitol Supply involved in this process." The motion also argues that the United States failed to pursue pre-complaint FCA discovery to fine tune its allegations, and that Capitol Supply, Inc. already produced 1.5 million pages of documents in response to two GSA subpoenas.
In sum, with hundreds of billions of dollars in government contracts awarded annually, country of origin certifications remain a key source of compliance and litigation risk under the FCA.