Contractor’s Settlement of False Claim Investigation Not an Admission of Fraud that Voided Contract; Regiment Construction Corp. v. Department of Veterans Affairs, CBCA 6449

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VA’s motion for summary judgment on contractor’s claim is denied. The contractor had settled a False Claims investigation with DOJ. The VA argued that the settlement agreement amounted to a finding that the contractor had committed a fraud, and that the fraud voided the contract and extinguished the contractor’s claim. The settlement agreement, however, expressly provided that it could not be construed as an admission of liability by the contractor. As a result, the board found, there was still an issue of fact concerning the contractor’s alleged fraud that precluded summary judgment.

The Department of Veterans Affairs awarded a contract to replace the plumbing at a medical facility to Regiment Construction Corp. The contract was set aside for service-disabled veteran-owned small businesses. After Regiment completed the contract it submitted a claim to the contracting officer. The contracting officer did not respond to the claim. Regiment appealed the deemed denied claim to the CBCA.

The parties asked the board to suspend the proceedings while they engaged in settlement negotiations. While negotiating, the VA learned that the Department of Justice had been investigating Regiment for misrepresenting its status as an SDVOSB. In fact, during the negotiations, Regiment had executed a settlement agreement with DOJ to resolve the investigation.

Upon learning of the fraud investigation, the VA moved for summary judgment in the CBCA proceedings. The VA argued that Regiment’s settlement with the DOJ demonstrated that the company had misrepresented its status as an SDVOSB to obtain the contract. Due to this misrepresentation, the VA contended, the contract was void ab initio. Regiment moved to strike the VA’s summary judgment motion, asserting that the VA had not asserted fraud as an affirmative defense when responding to the complaint and thus had waived the defense.

The board first addressed Regiment’s motion to strike. The board noted that its rules require that affirmative defenses be asserted in an answer, and that failure to assert the defense in an answer could result in waiver. Nevertheless, the board reasoned, the failure to state an affirmative defense in the answer is not a complete bar to ever asserting that defense. The purpose of requiring the assertion of affirmative defenses in an answer is to give the opposing party notice of the defense and a chance to respond. But if the defense is asserted late, and the opposing party has time to respond, the other party is not prejudiced by the last asse4tion, and the board will not find a waiver. Here, the VA asserted the defense in a summary motion, and Regiment had ample time to respond to the defense. The board declined to find that Regiment had been prejudiced by the late assertion.

As to the VA’s motion for summary judgment, the agency argued that Regiment’s settlement agreement with DOJ unequivocally demonstrated that the company had committed a fraud. The board disagreed. The agreement explicitly stated that it could not “be construed as an admission of liability by Regiment.” The board refused to interpret the settlement agreement as a finding of fraud. As a result, there was still an issue of fact concerning the alleged fraud that precluded summary judgment.

Regiment is represented by Timothy A. Furin of Ward & Berry PLLC. The government is represented by Harold W. Askins and David G. Fagan of the Department of Veterans Affairs.

CBCA - Regiment Construction