United States of America v. Strock et al

Filing 79

DECISION & ORDER: The Government's claims may proceed against Strock and Strock Contracting. The claims against Golde have been voluntarily dismissed 78 , pursuant to Fed. R. Civ. P. 41(a)(A)(ii). The Clerk of Court is directed to terminate Golde as a defendant. IT IS SO ORDERED. Signed by Hon. Frank P. Geraci, Jr. on 03/23/2021. (SFR)-CLERK TO FOLLOW UP-

Case 1:15-cv-00887-FPG Document 79 Filed 03/23/21 Page 1 of 11

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
______________________________________________
UNITED STATES OF AMERICA,
Plaintiff,
v.
LEE STROCK, KENNETH CARTER,
CYNTHIA ANN GOLDE, and
STROCK CONTRACTING, INC.,

Case #15-CV-0887-FPG
DECISION AND ORDER

Defendants.
______________________________________________
INTRODUCTION
On October 29, 2018, Plaintiff, the United States of America (“the Government”), filed its
amended complaint against Defendants alleging violations of the False Claims Act (“FCA”),
31 U.S.C. § 3729 et seq., (Counts I, II, III), common law fraud (Count IV), unjust enrichment
(Count V), and payment by mistake (Count VI). ECF No. 48. The Government alleged that
Defendants knowingly misrepresented that their company, Veteran Enterprises Company, Inc.,
(“VECO”), qualified as a service-disabled veteran owned small business (“SDVOSB”) in order to
obtain and profit from construction contracts that were set aside for SDVOSBs.
On September 24, 2019, upon Defendants’ motions, the Court dismissed the Government’s
amended complaint with leave to amend. ECF No. 69. The Government appealed. On January
25, 2021, the Second Circuit (1) affirmed this Court’s dismissal of the FCA counts against Golde,
(2) reversed the dismissal of the FCA counts against Strock, and (3) vacated the dismissal of the
FCA counts against Strock Contracting, Inc., as well as the federal common law claims against all
Defendants, and remanded for this Court to consider the adequacy of those claims in the first
instance. United States v. Strock, 982 F.3d 51, 68 (2d Cir. 2020).

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DISCUSSION
A detailed discussion of the facts and the Government’s claims is set forth in this Court’s
September 24, 2019 Decision and Order on the motion to dismiss (“MTD Order”) and in the
Second Circuit’s opinion, and, therefore, need not be repeated here. Broadly speaking, however,
the Government alleged that Defendants knowingly misrepresented that their company, VECO,
qualified as an SDVOSB in order to obtain and profit from construction contracts that were set
aside for SDVOSBs. The Government alleged that this conduct violated the FCA, which, in
general terms, imposes liability on any person who makes a false claim for payment from the
federal treasury. 31 U.S.C. § 3729(a)(1)(A)-(B).
To be actionable under the FCA, a misrepresentation like the one alleged here—“about
compliance with a statutory, regulatory, or contractual requirement[—]must be material to the
Government’s payment decision.” Universal Health Servs. v. United States ex rel. Escobar, 136
S. Ct. 1989, 1996 (2016) (clarifying the materiality standard and characterizing it as “demanding”).
In its MTD Order, the Court distinguished a “payment decision” from a decision to award
a contract in the first place, and held that “a misrepresentation is not necessarily material to the
Government’s payment decision just because the Government would not have awarded the
contract but for the misrepresentation.” MTD Order, 2019 U.S. Dist. LEXIS 163290, at *30-31.
In other words, the Court held that the Government needed to “sufficiently allege that VECO’s
SDVOSB status was material to its decision to pay VECO’s claims, not just its decision to award
VECO SDVOSB contracts.” MTD Order, 2019 U.S. Dist. LEXIS 163290, at *21. The Court
concluded that the Government had not met its burden.
The Second Circuit, however, determined that the Court “relie[d] on an unduly narrow
understanding of the scope of the relevant ‘payment decision.’” Strock, 982 F.3d at 65. It

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“assign[ed] ‘payment decision’ a broader scope than either party would” and held that “the
government’s ‘payment decision’ comprised both the decision to award contracts in the first
instance and the decision to ultimately pay claims under these contracts.” Strock, 982 F.3d 60.
Under that standard, the Second Circuit concluded that the Government had adequately alleged
materiality.
As a result, the Second Circuit reversed the Court’s dismissal of the FCA claims against
Strock. It affirmed the dismissal of the FCA claims against Golde but vacated the dismissal of the
FCA claims against Strock Contracting and remanded to this Court to consider the adequacy of
that claim.
The Second Circuit also vacated the Court’s dismissal of the Government’s common law
claims—fraud, unjust enrichment, and payment by mistake—against all of the Defendants. The
Court had dismissed those claims on the basis that it could decline to exercise supplemental
jurisdiction over them following the dismissal of the FCA claims, but the Second Circuit pointed
out that this Court has original jurisdiction over the common law claims. See 28 U.S.C. §§ 1331,
1345. The Second Circuit remanded to this Court to consider Defendants’ alternative arguments
for dismissal of the common law claims.
I.

The FCA Claims Against Strock Contracting
To impose liability, the FCA requires that a defendant knowingly—i.e. with actual

knowledge, deliberate ignorance, or reckless disregard—present or cause to be presented a false
claim for payment. See 31 U.S.C. §§ 3729(a)(1)(A), (b)(1). Strock Contracting urges the Court to
dismiss the FCA claims against it because the Government does not allege that Strock Contracting
itself submitted any false claims for payment (instead, VECO did), or had the requisite knowledge
that VECO was not a legitimate SDVOSB. ECF No. 53-1 at 6-7.

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The Government counters that Strock Contracting is vicariously liable for Strock’s
misrepresentations based on respondeat superior. ECF No. 56 at 9-10; Government Brief on
Appeal, No. 19-4331, ECF No. 46 at 53. Its theory is that Strock simultaneously acted both as an
employee of Strock Contracting and an employee of VECO, and was acting in the scope of his
authority at both entities when causing VECO to submit the false claims, 1 thus subjecting Strock
Contracting to vicarious liability. See STMicroelectronics v. Credit Suisse Grp., 775 F. Supp. 2d
525, 540 (E.D.N.Y. 2011) (“Where the evidence supports a finding that an agent made
misrepresentations simultaneously on behalf of distinct entities, there is ‘no difference in the fact
of liability of the two as principals.’”) (quoting Slotkin v. Citizens Cas. Co. of New York, 614 F.2d
301, 316-17 (2d Cir. 1979))).
Strock Contracting concedes that a corporate defendant may be held vicariously liable for
FCA violations under an agency theory but seizes on the Government’s use of the term “apparent
authority” to avoid liability. Strock Brief on Appeal, No. 19-4331, ECF No. 58 at 58. Strock
Contracting argues that Strock did not manifest Strock Contracting-authority vis-à-vis the
Government, but rather manifested VECO-authority, since the false claims were submitted by
VECO. Id. at 59. But apparent authority is just one form of respondeat superior liability; an
employee can also act with actual authority. See United States v. Gatto, 986 F.3d 104, 127 (2d
Cir. 2021) (describing actual and apparent authority). Here, the allegations suggest that Strock
had actual authority, because he partially owned and controlled Strock Contracting and VECO. It
thus makes no difference which entity’s authority was “apparent” to the Government.

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Any assertion to the contrary may be developed at a later stage in the proceeding.

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In its opinion, the Second Circuit noted that it expressed no view about the potential merit
of a vicarious liability theory, because that theory has not yet been adopted in this circuit. Strock,
982 F.3d 68 n.8. Nevertheless, the Court declines to dismiss the FCA claim against Strock
Contracting at this time. As noted above, Strock Contracting does not contest the viability of the
theory itself, nor does it argue that vicarious liability should not be applied in this circuit. Other
courts have allowed FCA claims to proceed based on vicarious liability. See, e.g., United States
ex rel. Jones v. Brigham & Women’s Hosp., 678 F.3d 72, 82 n.18 (1st Cir. 2012) (“We have long
held that corporate defendants may be subject to FCA liability when the alleged misrepresentations
are made while the employee is acting within the scope of his or her employment.”) (citing United
States v. O’Connell, 890 F.2d 563, 568 (1st Cir. 1989)); United States ex rel. Scollick v. Narula,
No. 14-cv-01339-RCL, 2017 U.S. Dist. LEXIS 119530, at *18 (D.D.C. July 31, 2017) (concluding
that plaintiff sufficiently alleged a theory of FCA-vicarious liability based on respondeat superior
where plaintiff alleged that individual defendants were senior executives of a corporate defendant
and that they acted with that corporate defendant’s authority when submitting false claims in the
name of a different corporate entity, which, like here, was alleged to be a fake SDVOSB).
Accordingly, the Court finds that the FCA claims may proceed against Strock Contracting.

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II.

The Common Law Claims 2
A. Fraud
1. Strock Contracting
Strock Contracting seeks dismissal of the common law fraud claim against it for the same

reasons as discussed above, i.e., that the Government does not allege that Strock Contracting itself
made a material false representation. ECF No. 53-1 at 9-10. But for the same reasons as above,
this argument fails. The doctrine of respondeat superior applies to fraud claims. See Rapillo v.
Fingerhut, No. 09-CV-10429 (VSB), 2016 U.S. Dist. LEXIS 202573, at *40 (S.D.N.Y. Sep. 14,
2016) “Under New York law, an employer may be vicariously liable for the tortious acts of its
employees only if those acts were committed in furtherance of the employer’s business and within
the scope of employment.”) (citation and quotation marks omitted); see also, e.g., Cosmos Imp. &
Exp. v. Merrill Lynch, Pierce Fenner & Smith, 96 CIV. 6224 (DLC), 1997 U.S. Dist. LEXIS 8409,
at *15-17 (S.D.N.Y. June 12, 1997) (denying motion to dismiss common law fraud claim against
corporate entity based on respondeat superior, and explaining that, because “fictional
entities . . . can only act through their agents,” particular allegations of the corporate entity’s
participation in the fraud is not required); Chapin Home for the Aging v. McKimm, No. 11-CV-

In its amended complaint, the Government asserted claims for common law fraud, unjust enrichment, and payment
by mistake without identifying the law under which those claims were brought. In their briefing, the parties cited both
federal law and New York law. See Strock Motion to Dismiss, ECF No. 52-1 at 23-24 (citing cases discussing federal
common law fraud and New York State unjust enrichment); Government Response, ECF No. 56 at 23-24 (citing cases
relying on New York law for unjust enrichment and payment by mistake elements). On appeal, the Government
framed these claims as being brought pursuant to federal common law, see Government Brief on Appeal, No. 194331, ECF No. 46 at 3, 11, 12, 21, 22, 24, 54, and the Second Circuit characterized the claims this way as well. Strock,
982 F.3d at 56, 68. It is not clear that all of these claims are cognizable under federal common law. See In re Actos
End Payor Antitrust Litig., No. 13-CV-9244 (RA), 2015 U.S. Dist. LEXIS 127748, at *87-88 (S.D.N.Y. Sep. 22,
2015) (explaining that “‘unjust enrichment is not a catch-all claim existing within the narrow scope of federal common
law,’ but rather a state-specific remedy.” (quoting In re Wellbutrin XL Antitrust Litig., 260 F.R.D. 143, 167 (E.D. Pa.
2009))); Myun-Uk Choi v. Tower Research Capital LLC, 890 F.3d 60, 69 (2d Cir. 2018) (characterizing unjust
enrichment as “a New York common law quasi-contract cause of action”); Marcus v. AT&T Corp., 138 F.3d 46, 57
n.2 (2d Cir. 1998) (noting that federal common law fraud and New York state common law fraud claims are
“practically identical”). Because the parties rely on New York law, or federal cases citing New York law, the Court
assumes that both parties agree to the elements of these causes of action as provided by New York law.
2

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667 (FB) (RER), 2013 U.S. Dist. LEXIS 34305, at *13 (E.D.N.Y. Mar. 11, 2013) (“[I]n the case
of intentional torts, like fraud, the plaintiff must show that the tort was committed in the employer’s
service.”).
Accordingly, the Court declines to dismiss the common law fraud claim against Strock
Contracting.
2. Lee Strock
Strock argues that the Government’s fraud claim is insufficient because it fails to allege
actual monetary damages and fails to specify the theory by which damages should be calculated.
ECF No. 52-1 at 23. The Court is not persuaded.
First, “‘Rule 9(b) does not require that claimants plead injury with particularity,’ even in
fraud claims.” Tyman v. Pfizer, Inc., No. 16-CV-06941 (LTS) (BCM), 2017 U.S. Dist. LEXIS
212879, at *20 (S.D.N.Y. Dec. 27, 2017) (quoting Sawabeh Info. Servs. Co. v. Brody, 832 F. Supp.
2d 280, 305 (S.D.N.Y. 2011)). Here, the Government’s fraud claim alleged that it “sustained
damages in an amount to be determined at trial” and the prayer for relief sought a judgment “for
an amount to be determined at trial.” ECF No. 48 ¶¶ 154, 174(B). Elsewhere in the amended
complaint, the Government alleged that it paid VECO approximately $21 million on the contracts
it fraudulently obtained. ECF No. 48 at ¶ 107. Strock has not offered any authority suggesting
the that Government’s damages allegations are insufficient. See DNV Inv. P’ship v. Field, No. 15
Civ. 1255 (PAC), 2017 U.S. Dist. LEXIS 144975, at *20 (S.D.N.Y. Sep. 7, 2017) (Defendants
“provide no support . . . for the argument that Rule 9(b) requires damages to be pleaded with
particularity. Nor has the Court located any. As a result, the Court will not dismiss Plaintiffs’
claims on this basis.”); cf. Sprint Sols., Inc. v. Sam, 206 F. Supp. 3d 755, 764 (E.D.N.Y. 2016)
(holding that allegations that plaintiffs “‘were damaged as a result’ sufficiently plead a claim for

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common law fraud and fraudulent misrepresentation under the higher pleading standard of Rule
9(b)”). The Court declines to dismiss the fraud claim against Strock on this basis.
Second, the Government’s failure to specify the measure by which damages should be
calculated is not fatal to its complaint. See Cyberlease, LLC v. JP Morgan Chase Bank, No. 04
Civ. 1221(NRB), 2005 U.S. Dist. LEXIS 17639, at *25 (S.D.N.Y. Aug. 19, 2005) (denying
defendant’s motion for summary judgment on fraud claim because “a mistake as to the proper rule
of damages is not material to the sufficiency of a complaint”); see also generally United States ex
rel. Feldman v. van Gorp, 697 F.3d 78, 88, 91 (2d Cir. 2012) (holding that “the appropriate
measure of damages . . . is the full amount the government paid based on materially false
statements”); Williams v. C Martin Co., No. 07-6592, 2014 U.S. Dist. LEXIS 57265, at *31 (E.D.
La. Apr. 24, 2014) (discussing various methods of calculating damages in cases similar to this one
and explaining that the damages issue is for a jury to decide); United States ex rel. Scollick v.
Narula, No. 14-cv-01339-RCL, 2017 U.S. Dist. LEXIS 119530, at *54 (D.D.C. July 31, 2017)
(“The intended third party beneficiaries here are actual SDVOSBs who are eligible for SDVOSB
set aside contracts. The Amended Complaint alleges that CSG and Citibuilders—who did not
qualify as SDVOSBs—sought payments for contracts awarded pursuant to this SDVOSB set aside
program. Thus, it has sufficiently alleged that the government received nothing of value here.”).
3. Cynthia Golde
On March 22, 2021, the parties filed a stipulation of dismissal of all claims against Golde
with prejudice, pursuant to Fed. R. Civ. P. 41(a)(1)(A)(ii). ECF No. 78. Thus, the fraud claim
against Golde has been dismissed with prejudice. Id.

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B. Unjust Enrichment and Payment by Mistake
To state a claim for unjust enrichment, a plaintiff must (1) establish that the defendant was
enriched, (2) at the plaintiff’s expense, and (3) that equity and good conscience counsel against
defendant’s retention of what the plaintiff seeks to recover. Beth Israel Med. Ctr. v. Horizon Blue
Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 586 (2d Cir. 2006). A “New York unjust
enrichment claim requires no ‘direct relationship’ between plaintiff and defendant, only a
connection that is not “too attenuated.” Myun-Uk Choi v. Tower Research Capital LLC, 890 F.3d
60, 69 (2d Cir. 2018).
Somewhat similarly, “[t]he elements of a claim for payment by mistake are that plaintiff
made a payment under a mistaken apprehension of fact, that defendant derived a benefit as a result
of this mistaken payment, and that equity demands restitution by defendant to plaintiff.” United
States ex rel. Ryan v. Staten Island Univ. Hosp., No. 04-CV-2483 (JG) (CLP), 2011 U.S. Dist.
LEXIS 51648, at *13 (E.D.N.Y. May 13, 2011) (explaining that both common law claims [of
unjust enrichment and payment by mistake] turn on whether the . . . defendants have benefitted
from what is rightfully the government’s such that equity and good conscience demand
restitution.”).
1. Strock and Strock Contracting
Strock and Strock Contracting argue that the Government’s unjust enrichment and payment
by mistake claims fail to allege how those Defendants unjustly enriched themselves or why the
Government should be able to recover against them, when the Government made payments to
VECO, not Strock or Strock Contracting.
But the amended complaint alleges that VECO made various payments to Strock, Strock
Contracting, and other entities Strock owned or controlled. ECF No. 48 ¶¶102-106. Drawing all

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inferences in favor of the Plaintiff, the Government sufficiently alleges that Strock and Strock
Contracting enriched themselves by receiving payments from VECO after VECO received
payments from SDVOSB contracts, and that it would be inequitable to keep the money because it
was supposed to have been paid to legitimate SDVOSBs. See United States ex rel. Ryan v. Staten
Island Univ. Hosp., No. 04-CV-2483 (JG) (CLP), 2011 U.S. Dist. LEXIS 51648, at *15-16
(E.D.N.Y. May 13, 2011) (“A defendant that has received a mistaken payment may be required to
restore the unearned funds to the payer even if the mistake was caused by the negligence or
wrongdoing of another party. The fact that money was transferred directly from plaintiff’s
possession to defendant’s (albeit by a third party) is enough to sustain a claim for unjust
enrichment.” (brackets, citation, and quotation marks omitted)); see also, e.g., United States ex rel.
Forcier v. Comput. Scis. Corp., 183 F. Supp. 3d 510, 529 (S.D.N.Y. 2016) (finding that it would
be premature to dismiss unjust enrichment claim based on defendant’s argument that it “was not
enriched at the Government’s expense and does not possess any wrongfully obtained State funds”
where the complaint alleged that defendant developed incentive structures “in the form of bonus
payments based on the total amount of Medicaid reimbursements [defendant] secured for the City,
and that such incentive structures violated federal and state law”); United States ex rel. Kester v.
Novartis Pharm. Corp., 2014 U.S. Dist. LEXIS 164222, at *25 (S.D.N.Y. Nov. 24, 2014) (holding
that the cause of action of unjust enrichment “is not narrowly centered on false claims and
remuneration . . . , but instead examines the overall fairness of a transaction”).
2. Golde
As stated above, the parties stipulated to dismissal, with prejudice, of all claims against
Defendant Golde. Thus, the Government’s unjust enrichment and payment by mistake claims
against Golde have been dismissed. See ECF No. 78.

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CONCLUSION
For the foregoing reasons, all of the Government’s claims may proceed against Strock and
Strock Contracting. The claims against Golde have been voluntarily dismissed, pursuant to Fed.
R. Civ. P. 41(a)(A)(ii). ECF No. 78. The Clerk of Court is directed to terminate Golde as a
defendant.
IT IS SO ORDERED.
Dated: March 23, 2021
Rochester, New York
______________________________________
HON. FRANK P. GERACI, JR.
Chief Judge
United States District Court

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