Government’s motion for leave to file a counterclaim is granted. The contractor had sued the government for breach, alleging a constructive change. The government moved to amend its answer to allege a counterclaim for fraud. The government alleged the contractor had a scheme with an agency official in which it gave the official a Chevy Suburban in exchange for the official approving false invoices. The contractor alleged the counterclaim was futile and untimely. The court, however, found that the government had sufficiently pleaded the elements of common law fraud. Moreover, the government had only recently discovered the fraud and not unduly delayed in bringing the counterclaim.
Square One Armoring Services Company had a contract with the Department of State (DOS) to provide armored vehicles. Square One submitted a claim to DOS alleging a constructive change. DOS denied the claim. Square One filed suit in the Court of Federal Claims, alleging that DOS had breached the contract.
After conducting discovery, the government moved to amend its answer to add a counterclaim against Square One for fraud. The government alleged that Square One participated in a scheme with the DOS contracting officer representative in which the representative approved false invoices from Square One in exchange for the company giving him a Chevy Suburban. Square One opposed the motion to amend, alleging it was futile, that it was brought in faith, and was unduly prejudicial.
The court noted that to proceed with a counterclaim with common law fraud, the government had to sufficiently plead five elements: (1) a representation, (2) falsity of the representation, (3) intent to deceive, (4) justifiable reliance on the misrepresentation by the party deceived, and (5) injury to the deceived party.
The court found the government had adequately pleaded the first two—false representation—elements. It alleged that Square One had charged DOS $82,000 for vehicles that should have only cost $50,000 each.
The court also found the government had sufficiently pleaded the intent, or scienter, element. The government had alleged that communications among Square One’s employees indicated that the company knew its invoices were false. Additionally, the government had alleged that Square One knew the government had not ordered the Suburban that ended up being titled in the name of the COR’s wife, and that Square One never informed DOS about irregularities surrounding the allegedly false invoices.
Square One argued that the government could prove intent to deceive because the contracting officer’s final decision on Square One’s claim had asserted that the company had submitted the allegedly false invoices in good faith. But the court found that the contracting officer’s determination of good faith was irrelevant, because the CO had no authority to decide a claim involving fraud. Moreover, the court reasoned, at this stage of the proceedings, the inquiry was not whether the government could prove fraud, but rather whether the government’s counterclaim could survive a motion to dismiss.
The court reasoned that the government had adequately pleaded justifiable reliance by alleging that DOS paid the false invoices. Square One argued that paying the invoices did not amount to justifiable reliance because the invoices were prepared at the direction of DOS. The court, however, noted that questions surrounding government’s actual reliance needed to resolved later in the suit.
The court further concluded that the government had plausibly pleaded injury by alleging that it overpaid Square One. Still Square One contended that it had internal accounting that disproved the government’s injury. The court noted while internal accounting could disprove the government’s injury, at this stage, the court had to assume that the facts in the counterclaim were true.
Square One contended that it had submitted the allegedly false invoices years ago, so the government’s fraud was barred by the statute of limitations. The court, however, noted that under 28 U.S.C. § 2415(f), a government counterclaim is timely if it arises out of the same events as the plaintiff’s timely claim.
Square One asserted that the government was bringing the counterclaim in bad faith. The court reasoned that whether bad faith exists is a factual inquiry, and nothing currently in the record indicated that the government was acting in bad faith.
Square One claimed that allowing the counterclaim would be unduly prejudicial because it would expand the scope of the discovery and require the parties to re-depose witnesses. The court rejected this, finding that the counterclaim arouse from the same contract as Square One’s claims and thus would not drastically increase the scope of the case.
Lastly, Square One alleged that the counterclaim should be denied because the government had unduly delayed in bringing the claim. The court noted that the allegedly false invoices were submitted in 2008 and 2009. But the government did not really learn about the fraud until it deposed one of Square One’s employees in 2020. Thus, the government did not unduly delay.
Square One is represented by David J. Habib, Jr. of the Law Office of David J. Habib. The government is represented by James W. Poirier, Jeffrey Bossert Clark, Robert E. Kirschman, Jr. and Allison Kidd-Miller of the Department of Justice.
