A1 Procurement, LLC. et al v. Thermcor, Inc. et al

Filing 190

OPINION AND FINAL ORDER - This court, having examined the Relator's Objections to the Magistrate Judge's R&R, and having made de novo findings with respect thereto, does hereby OVERRULE the Objections and ADOPT the R&R in full. Accordingly, as requested in the Defendants' Combined Motion, ECF No. 155 , summary judgment is GRANTED in favor of the Defendants, and the Relator's Motion, ECF No. 158 , is DENIED. Copies distributed to counsel for the parties. Signed by Chief District Judge Rebecca Beach Smith on 7/5/2017. (cchr)

UNITED

STATES

DISTRICT COURT

EASTERN DISTRICT OF VIRGINIA

Norfolk Division

A1 PROCUREMENT,

LLC,

Relator,
ACTION NO:

V.

THERMCOR,

INC.,

2:15cvl5

et a l . .

Defendants.

OPINION AND

On November 3,
Complaint
District

the Relator filed its original qui tarn

in the United States District
of

Defendants

Business

2011,

FINAL ORDER

Florida.
made

ECF No. 1.

false

("SBA")

Veteran-Owned Small Business"

("Amended

and

about

alleges

claims

their

("SDVOSB")

the Southern

to

that

the

the

Small

"Service-Disabled

status.

Id^ ft 51-67.

the Relator filed its First Amended Complaint

Complaint"),

Defendants'

for

Complaint

statements

Administration

On May 21, 2014,

The

Court

which
in

involvement

added
SBA's

the

allegations

relating

to

8(a)

Minority

Sole-Source

Southern

District

of

Program. ECF No. 25, HH 65-86.
I.

On

January

transferred
No.

57.

Combined

On

15,

venue

to

September
Motion

("Defendants'

2015,
the
26,

to

Combined

the

Eastern
2016,

Dismiss

District

Thermcor
and

Motion").

of

filed

for
ECF

Florida

Virginia.
the

Defendants'

Summary
No.

ECF

Judgment
155.

On

October 10, 2016,
("Relator's

the

Opposition

October 17, 2016,
Reply"),

LLC,

159.

ECF

filed

Motion")

filed

a

Memorandum in Opposition

Response").

ECF

No.

the Defendants filed their Reply

No.

169.

On

September

its Motion for

29,

2016,

Opposition

14,

20,

2016,

the

Defendants

filed

the

Procurement,

Relator

filed

its

("Relator's

ECF Nos.

a

Opposition Response").

On

("Defendants'

Partial Summary Judgment

2016,

("Defendants'

164.

A1

and accompanying Memorandum in Support.

On October

October

Relator

158,

Memorandum

ECF No.

Reply

168.

in

On

("Relator's

Reply"). ECF No. 170.
On October 21,

2016,

this

court

referred the above motions

to United States Magistrate Judge Douglas E. Miller,
the provisions of
Civil

28 U.S.C.

Procedure

hearings,

undersigned

district

applicable,

and

ECF

November

2,

ECF

No.

Magistrate
Defendants'

conduct

necessary,

judge

171.

2016,

183.

A

before

The

Judge

dismiss the case.

on

recommended

Combined

to

the
the

Motion,

Judge

April 4,
that
deny

the

the

fact,

of

to

if

disposition
Motions

2017.
court

a

ECF
grant

Relator's

R&R at 2. By copy of the R&R,

was

of
held

the
on

See Transcript,

issued

the

including

submit

the Magistrate Judge.

Magistrate

("R&R")

on

hearings,

findings

for

hearing

and Federal Rule of

and

proposed

recommendations

No.

Recommendation

if

636(b) (1) (B)

to

72(b),

evidentiary

Motions.

§

pursuant to

Report

and

No. 186.

The

in part

the

Motion,

and

the parties were

advised

of

to

the

findings

and recommendations made by the Magistrate Judge.

The

Relator

filed

Defendants
May 2,

their

a

to

the

R&R

to

which

objected.
or modify,

Fed.

to

Rule

72 (b)

objections

2017.

ECF

Objections

No.

187.

The

("Response")

on

shall

the

Federal

review the

Rules

record

in

of

its

Civil

entirety,

novo determinations of those portions of the
the

R.

Parties

Civ.

Judge,

instructions.

18,

the

of

P.

have

72(b).

in whole or in part,

Magistrate

written

189.

court

and shall make ^

file

on April

Response

ECF No.

Pursuant

Procedure,

to

Objections

filed

2017.

right

or

and

properly

The court may accept,

reject,

the recommendations made by the

recommit

28 U.S.C.

specifically

the

matter

to

him

with

§ 636(b)(1).
II.

Additionally,
Statement

of

on April 26,

Interest.

ECF

No.

2017,

the United States filed a

188.

The

United

States

did

not

seek leave of court prior to filing

its Statement of Interest.

Under

any

Local

Civil

Rule

communications

beyond

those

filed

first

without

7(F),
specified

obtaining

leave

briefs

in
of

the

or

rule

Court."

written

may not

The

"be

Defendants

have asked that this court construe part of their Response as a
Motion to Strike the Statement of Interest. Resp.

Regardless

of

how

the

Statement

of

at 1,

Interest

n.l.

should

be

construed—as an amicus curiae submission or as an objection to

the R&R—it is arguably untimely.

provide,

and

authority,

Rules

Appellate

curiae

could

Procedure

submissions.

Consulting LLP,
sub nom.

court

not

locate,

any

controlling

district courts have looked to Rule 29 of the Federal

of

amicus

the

Although the parties did not

U.S.

See

guidance

U.S.

ex

512 F. Supp. 2d 920,

927

ex rel.

2008 WL 3244000

for

Gudur v.

(5th Cir.

Deloitte

Aug.

7,

on

rel.

timeliness

Gudur

(S.D. Tex.
& Touche,

2008) .

Rule

v.

of

Deloitte

2007), aff'd
No.

07-20414,

29 provides

that

an amicus curiae submission must be filed "no later than 7 days

after

the

filed."

Fed.

Relator's
the

principal

time

R.

brief

App.

P.

Objections

April 25, 2017.

the

29(a)(6).

to be

for an amicus

of

a

curiae

the

being

supported

is

court considered the

brief

under

submission would have

that

rule,

expired on

If the court considers the Statement of Interest

i t would have been due

issued, on April 18,

However,

If

principal

to be akin to an objection to
because

party

the

R&R,

it

is

also untimely,

fourteen days after the R&R was

2017.

the Statement of Interest is not a typical filing.

It was not filed by a formal party and it "takes no position as
to

the

overall

merits

of

the

case."

Statement

of

Interest

at

2.

These distinctions cast some doubt on the applicability of rules

that were designed to deal with other types of
courts

have

analogized

filings

in the past,

the

similar
court

statements

is hesitant

to

filings.
more

to strike a

While

typical
filing

without

clear

Accordingly,

guidance

the

court

from

will

controlling

consider

the

legal

authority.

Statement

of

Interest

as if it were an amicus curiae submission in reviewing the R&R,
and exercises its discretion to extend the
one

day.

As

such,

the

court

DENIES

the

filing deadline by

Defendant's

Motion

to

Strike.
III.

The SBA administers two programs that are relevant to this
case.

One is the SDVOSB Set-Aside Program and the other is the

8(a)

Business Development

between

the

materials

years

to

of

the

2007

SBA

Program.^ The Relator alleges
and

2015,

containing

the

false

Defendants

that,

submitted

certifications

that

misrepresented Thermcor's eligibility for those two programs.
While

Thermcor

SDVOSB program,

8(a)

8(a)

any

The

that

8(a)

are

program

owned

by

a

is

contracts

is

C.F.R.

for

"early graduation"

designed

disadvantaged

tasked with
§§ 124.101,

admission into

determining
124.112,

the

8 (a)

and
8(a)

the

to

aid

small

individual.

compliance.

The

and while it

termination processes,

124.301-04.

program,

under

contract bids under the

regulatory scheme sets out various conditions,

provides
SBA

obtained

it did make successful

program.

businesses

never

See,

e.g.,

the
13

Even after being granted

participants

continue to make

^ For a more detailed explanation of the factual background,
see

the

R&R a t

2-16.

annual

"[s]ubmissions

C.F.R.

§ 124.112(b).

nine-year

term

supporting
If

limit,

an

is

or

obtain

8(a)

8(a)

"early

from the program by the SBA,
set-aside

continued

eligibility."

participant

graduated,"

13

reaches

or

is

the

terminated

it is no longer eligible to bid on

contracts,

"is

obligated

§ 124.304.

All the contracts that Thermcor obtained through the

in claims

contracts."

for payment

13

to

previously

program resulted

8(a)

it

complete

8 (a)

awarded

but

C.F.R.

"made directly to

the government agencies who solicited the work," and not the SBA
itself.
The

Act
or

Fourth Circuit

("FCA")

liability:

fraudulent

the

course

requisite

has

summarized

"(1)
of

scienter;

the

test

for

whether there was a

conduct;

(3)

(2)

that

made

was

or

False

false statement

carried

material;

and

out

with

(4)

that

caused the government to pay out or to forfeit moneys due
that

involved

River Co. ,

Harrison

176

I,

defendant's
conditions
at

a

F.3d 776,

the
false
in

'claim')."

Harrison

788

plaintiff

(4th Cir.

brought

certification

order

to

v.

an

"that

induce

the

Westinghouse

1999)

it

Claims

(i.e.,

Savannah

("Harrison I").

FCA

claim

based

In

on

a

had complied with the

government

benefit."

Id.

786.

The

express

Supreme

false

theory can be

Court

recently

certifications,

a

basis

for

"the

held

that,

implied

liability"

under

in

false

the

addition

to

certification

FCA.

Universal

Health Servs.,
(2016)

Inc.

v.

United States,

136 S.

Liability may attach under the FCA:

Ct.

(1)

1989,

2001

if a defendant

submits a claim for payment with specific representations about
the

goods

or

services

noncompliance
requirement;
renders

with
(2)

its

a

provided,

statutory,

such that

the

representations

misrepresentation

is

decision.

Id.

relevant

knowingly

violated

material

to

The

the

a

and

not

regulatory,
omission of

to

the

question

requirement

is

that

the

noncompliance

and

"whether

(3)

the

defendant

decision."

its

contractual

government's

the

payment

disclose

or

misleading;

material

Government's

does

the

payment
defendant

knows

Id.

is

at 1996.

This materiality requirement is "rigorous." Id.
A

"claim"

under

the

FCA

"includes

direct

requests

to

the

Government for payment as well as reimbursement requests made to

the

recipients

of

federal

funds

programs." I ^ (citing 31 U.S.C.
"knowingly"

means

information, '

falsity of
the

truth

"that a

'acts

the
or

in

deliberate

of

^ But see Harrison I,

or
the

federal

§ 3729 (b)(2)(A)).

person has

information,'
falsity

under

*actual

ignorance

'acts

benefits

"Knowing" or

knowledge
of

the

of

truth

the
or

in reckless disregard of

information.'"

176 F.3d at 787 n.8

Id.

(quoting

(Fourth Circuit

previously stated that, under the FCA, the permissibility of an
implied false certification claim was "questionable"); U.S. ex
rel. Herrera v. Danka Office Imaging Co., 91 F. App'x 862, 864
(4th Cir.

2004).

§ 3729(b)(1)(A)).
to

influence,

"Material"

or

be

means

capable

"'having

of

vehicle

for

regulatory

the

is

minor

Id.

at

scope

payment

and

breaches

or

It

is

option

to

decline

not

"a

contract

of

is

or

insufficient

noncompliance,"

or

despite

were

in

2003.

the

However,

full

requirements

limited

defendant's

"noncompliance

in

Id.

would have

the

materiality.

is

the

tendency

(quoting § 3729(b)(4)).

garden-variety

violations."

of

claim

FCA

punishing

Government

knew

the

natural

influencing,

receipt of money or property.'" Id.
Importantly,

a

insubstantial,"

to

pay

and,
there

"that

if

if
can

it
the

be

no

"if the Government pays a particular

its

violated,

actual

that

is

knowledge
very

that

strong

certain

evidence

that

those requirements are not material." Id. at 2003-04.
IV.

The Magistrate Judge concluded that,
the

light

falls

most

outside

receive

favorable

the

payments

certifications,

goods

scope

to

of

the

or services

Relator,

FCA liability

on any SDVOSB
whether

viewing the

false

contracts,
or

provided to

not,

facts

"Thermcor's

in

conduct

because

it

and

eligibility

did

not

the Government."

its

did

relate

R&R at

not

to

the

19.

The

Magistrate Judge further concluded that "the certifications were
not

otherwise material

claims

Thermcor

recommended

that

made

the

to
.

the
.

court

Government's
.

."

grant

Id.

in

decision to pay the

The

part

Magistrate

the

Judge

Defendants'

Combined

Motion

and

deny

the

Relator's

Motion,

because

"the

undisputed facts show that Thermcor is entitled to judgment as a
matter of law."
the R&R.

Id. The Relator has filed four

(4)

objections to

The court will address the objections in turn.
A. First Objection

The Relator's
applicability
Relator
that

of

objects

the
that

fraudulent

application[s]

first

objection involves

FCA

to

"[t]he

circumstances

Magistrate

statements

submitted

the

to

the threshold-level

Judge

at

erred

on

applications

gain

eligibility

hand.
in

holding

and
to

The

renewal

government

set-aside programs are not actionable under the FCA." Obj. at 2.
This

objection

is

meritless.

The

court

finds

it

necessary

to

point out that the Magistrate Judge did not make that finding.
The

Magistrate

circumstances,
8(a)

Judge

did,

however,

conclude

that

under

these

the allegedly false statements made on Thermcor's

renewal applications are not actionable under the FCA.

See

R&R at 37-46. The court agrees with the Magistrate Judge.

The

Relator

argues

regulatory compliance
that

those

the FCA.

allegedly

Obj.

at

5-6.

fact

that

Thermcor's

were

made

to

contracting

the

that

to

false
As

is

SBA in

expressly

its

are

certified

its

submissions,

8(a)

certifications

and

actionable

under

the Magistrate Judge pointed out,

express

SBA and

agencies

the

Thermcor

not

certifications
the

Navy,

significant.

of

Coast

See

8(a)
Guard,

R&R

at

the

compliance
or

32.

other

The

Defendants did not seek payment from the SBA,

submissions

to

Magistrate

the

Judge's

applications
accurate.

were

The

SBA

were

not

statement

"not

only

that

claims

"claims

claims

for

Thermcor's

for

for

and,

payment,"

payment"

were

thus,

their

payment.
annual

The

renewal

R&R

at

39,

the

claims

payment that Thermcor submitted to contracting agencies,

is
for

and it

is those claims that are theoretically actionable under the FCA.
That

is

always

not

to

outside

Relator's

say

the

that

false

scope

Objections,

of

the

eligibility

the

FCA,

certifications

and,

Magistrate

contrary

Judge

made

to
no

are

the
such

assertion.^

The

through

various

citations to cases that are not binding on this court,

and most

of

Relator

which

were

Thermcor's

false

FCA.

at

Obj .

theorizes
for

the

that,

repeatedly

considered
statements

3-5;

see

by
to

the

the

obtained

Magistrate

SBA

generally

because 8(a)

contracts

emphasizes,

are

R&R

at

Judge,

actionable

31-40.

The

transitively,

false

the

Relator

program participation was required
by

Thermcor,

any

false

Thermcor made to the SBA in pursuit of remaining 8 (a)
are,

under

that

statements

made

on

future

statements

certified
claims

for

^ Although, if the Defendants had never actually obtained or
performed an 8(a) contract, and thus never made a claim
payment, as was the case with the SDVOSB contracts, see
at 35,

none

of

their

actionable under the

submissions

FCA.

10

to

the

SBA

could

have

for
R&R
been

payment.

analogy

However,

do

not

common sense.

said it was.

Relator's

persuade

the

efforts

court

to

Thermcor was an 8(a)

Certification,

participation
decisions

the

in

that

the

cannot

be

Although

the

revoked

payment on 8(a)

with

contracts,

its

and

notions

of

and,

consequently,

are

by

the

general

discretionary
Relator's

SBA

competing

regulatory scheme requires.

Relator argues

fraud-in-the-inducement

reject

program,

interpretation of what the 8(a)

wordsmithing

participant because the SBA

renewal,

8(a)

at

that

it

respect

to

pled

facts

Thermcor's

Obj . at 5 n.3,

supporting

claims

for

the court agrees with

the Magistrate Judge that the Relator did not adequately plead a
fraud-in-the-inducement theory of liability.
Simply

using

the

word

insufficient.

Never

allege

concerning

Further,

facts
while

submission
that year's

by

the

in

"induce"
the

Amended

appears

"induced

contracts,"

its

Obj.

at

Amended

Complaint

Thermcor's

Relator

Thermcor

in

See R&R at 33 n.l4.

initial
to

the

argue

does

status is one of inertia;

graduation.
renewal

Even

if

submissions,

Thermcor
there

is

that

each renewal

to

into

A company's

i t continues until termination or

had
no

failed

permissible

pattern
11

entirely

indication

On the contrary,

"a

enter

the Relator provides no

automatically terminated.

following

Relator

eligibility.

explanation or timeline to support that assertion.
8(a)

the

is

8(a)

government

5 n.3,

Complaint

of

that

to

make

it

would

its
be

while termination is

failure

to

make

required

submissions,"

it

participant's

contract,

not

mandatory.

Accordingly,

§ 124.303(a)(7).

is

describing

annual

simply

SBA

submissions

because

documentation each year,

the

is a

See

13

each

as

a

of

new

regulations

C.F.R.
an

inducement

require

logical stretch.

8(a)
to

updated

The court has no

basis to find that various contracting agencies might have been
induced to contract with Thermcor because of

renewal

submissions,

and

the

court

is

the contents of

not

persuaded

by

its

the

Relator's "continuing inducement" argument.
The Relator also argues that,
for

payment

itself

as

under

8 (a)

participant.
stated,

8(a)

contracts,

compliant

See

in making its ultimate claims

Obj .

at

by

Thermcor

representing

4-6.

But,

as

the only way to define an 8 (a)

reference

to

regulatory

the

certification

scheme.

R&R

at

39.

impliedly

itself

the

outlined

certification

great deal of discretion.

an

business

business

is

a

program.

Thermcor participated

Thermcor

was

business,

involving a

when,

no

an

8(a)

"false

its

in

business.
statement

call on the U.S.

in making

that
the

8(a)

claims

Thermcor

made

in

for

in

the

the

Therefore,

was
a

8 (a)

an

8(a)

transaction

176 F.3d at 788,

payment

Thermcor represented itself as an 8(a) participant.
12

Judge

procedures

in

program.

fisc," Harrison I,

ultimate

8 (a)

Quite simply,

participates

Because
[was]

an

certified business is by

provide the SBA with a
8 (a)

as

Magistrate

procedures
Those

certified

on

contracts,

Further,

contracting

agencies

that

work

with

the

8(a)

set-aside program limit their contracts to those businesses that
are

8(a)

the

certified,

SBA

itself

program

to

See

C.F.R.

13

terminate

eligibility);
individual

8(a)

ED

does

those

an

not

not

that

that

§ 124.303 (a)(2)
8 (a)

cf.

program
of

C.F.R.
of

a

8(a)

compliant.

limit

are

the

strictly

(indicating

business

13

are

necessarily

businesses

on behalf

appearance

those

if

§

it

business

participation

has

the

SBA

concern
to

not

(emphasis

compliant.
"may"

maintain

right

or

set-aside

the

to

("Any

whether

eligibility.")

8(a)

that

fails

124.201

8 (a)

Indeed,

its

or

apply

there

any
for

an

Unless

added).

is

a

contracting entity could engage in its own determination of 8(a)
compliance,

8(a)

eligibility

to

compliance,

bid on

8(a)

in

of

itself,

contracts.

Cf.

(explaining that the SBA determines 8 (a)

is

13

irrelevant

C.F.R.

to

§ 124.507

eligibility) .

Thermcor

did not make false statements when it represented itself as 8 (a)

certified in making its claims
fact

an

8(a)

participant

at

for payment,
all

relevant

because

it was

times.

The

in

court

OVERRULES the Relator's first objection.
B. Second Objection

The Relator's second objection deals with materiality.
Relator argues,
a

claim

for

The

not only was there fraudulent conduct related to

payment,

but

also

that

the

fraudulent

material to the government's payment decision.
13

Obj.

conduct

was

at 7-8.

The

Relator asserts that "the alleged false statements were material

despite

Thermcor's

continued

enrollment

in

the

8(a)

program

while being investigated." Id. at 6.
The Relator argues that the Magistrate Judge's comment that
"false

statements

had

*no

bearing

services Thermcor performed'
immateriality." Id.
the R&R,

.

.

on

the

actual

ship-repair

. does not support a finding of

(quoting R&R at 40) . First,

in that part of

the Magistrate Judge simply listed two types of

false

statements as "example[s]" of issues that "had no bearing on the

actual

ship-repair

services

Thermcor

Second,

it is true that any false statements had no such impact,

and i t matters that they did not,
likely

be

material.

Moreover,

performed."

because otherwise,
because

applications were not claims for payment,
protests

to

the

contrary,

SBA were material

question.

property

the

8(a)

at 40.

they would

8(a)

renewal

despite the Relator's
statements

certification is

to

the

the wrong

The correct question is whether Thermcor's statements

to the SBA were material

payment,

the

whether Thermcor's

to the SBA's

R&R

in

connection

which it made

SBA.

The

to the payment or receipt of money or
with

Thermcor's

actual

statements

"would not

for

to various contracting agencies and not
made

by

Thermcor

on

applications were not "so central" to the 8 (a)
government

claims

have

paid

14

these

claims

the

8(a)

renewal

program that the
had

it

known"

of

the
at

statements.

Universal

Health

Health

Servs.,

Services,

Inc.,

136

S.

Ct.

2004.

In

Universal

received Medicaid reimbursements

services,

despite the facts

a

for

that

its

"few

actually licensed to provide mental
supervision of them was minimal."
professionals

was

properly

requirements

who

who

patients.

Id.

payment

treated

licensed."
to

employees

used

had

the

In

its

codes

Additionally,

Medicaid

employees were

patient,

treatment

treatment

one

regulatory

(23)

facility

services

submissions,

employees

"only

"despite

provided

different

facility

treatment

twenty-three

reimbursement
for

health

at 1997. Of five different

Moreover,

licenses

facility-

[facility]

Id.

contrary,"

lacked

mental

health

health counseling and that

one

Id.

mental

the

to

facility

services.

"misrepresented

Id.

their

qualifications and licensing status to the Federal Government to
obtain

National

submitted

in

correspond

Provider

connection

to

Massachusetts

specific

Identification

with

job

investigated

Medicaid

titles."
the

numbers,

which
claims

reimbursement

Id.

Following

facility,

and

are
and

complaints,

the

facility

"agreed to a remedial plan." Id.
Universal

claims

is

for

Health

payment

legally

submitted by

did

"not

implicitly represent

entitled

the

Services

to

facility

payment."

in

that
15

resolve

that

the

whether

all

billing party

Id.

at

2000.

The

claims

case

did

"more

than merely

demand payment" and "omitt[ed]
rendering
held

them

"actionable

critical qualifying information,"

misrepresentations."

Id.

The

Court

that

the implied certification theory can be a basis for
liability,
at
least
where
two
conditions
are
satisfied: first, the claim does not merely request
payment, but also makes specific representations about
the
goods
or
services
provided;
and
second,
the
defendant's failure
to disclose noncompliance with
material
statutory,
regulatory,
or
contractual
requirements makes
those representations misleading
half-truths.

Id.

at 2001.

violation

The

of

Court

an

also

express

held

that

condition

of

"not

every

payment

undisclosed

automatically

triggers liability." Id.
Recently,

Fourth
FCA

Circuit

claim"

in

found

where

ensure all

its

United

States

that

Triple

"the

v.

Government

Canopy

employees

Triple

was

Canopy,

Inc.,

properly

an

required

contractually

alleged

to

had satisfactorily completed a

States Army qualification course,

but

used

"guards

175

(4th Cir.

documents

instead

noncompliance.
unqualified

Id.

2017).

of

the

Government

of

its

Triple Canopy billed the Government for the

employees.

Id.

Health

"specific

representation"
no

857 F.3d

Triple Canopy falsified qualification

informing

Universal

"contained

United

from Uganda

who were unable to meet this marksmanship requirement."

174,

the

at

Services,

falsities

Unlike

the

defendant

Canopy

did

not

invoices,

and

the

invoices

at

178.

However,

Triple

in
on

176.

its

their
16

face."

Id.

make

in

a

Triple

Canopy

did

request

payment

from

the

Government

for

employees that i t knew were unqualified under the contract.

Unlike

"guns

that

do

not

shoot"

or

"guards

that

cannot

Id.

shoot

straight," id. at 179, any false statements made by Thermcor had
no impact on the services i t provided.
The

Relator

asserts

that

the

Magistrate

Judge's

statement

that "the SBA was aware of the conduct and consistently retained

Thermcor in the 8(a)
R&R

at

41)

further

(internal

argues

statements.

belied by
that

the

Thermcor's
Yet,

to

Thermcor
itself

omitted).

not

the

Intent

to

aware

Relator's

on

noted

(quoting

The

of

Relator

any

false

assertions

Early Graduate"

are

("Letter")

February 10, 2016.
that

requirements

subject

the

the

8(a)
status

of

the

SBA's

SBA

did
the

status

Letter

set-aside contracts,

Obj.

not
8(a)

in

the

false

at

awareness

had

could

of

repeated

application."

Thermcor from
its

was

However,

Relator

renewal

certification

8(a)

sent

the

non-compliance,

maintain

7.

SBA

eligibility

despite

terminate

the

marks

Obj . at 7

ECF

"clearly

Thermcor was not in compliance with the net worth

affiliate
were

quotation

"Letter of

The

stated th[at]

which

at

SBA

No. 159-18.

and

that

Id.

the

program" was incorrect.

fact

program.

even

program,

statements

(emphasis

added).

of

this

apparent

"early

graduate"

or

Allowing Thermcor to

allowed

as

its

it

to

continued
obtain

despite the SBA's knowledge of a
17

on

9

significance,

have

8(a)

new

lack

of

compliance

(indicating

with

that

the

regulatory

ineligibility

to

scheme.

obtain

See

Letter

new

8(a)

at 1-3

contracts

begins on the date of early graduation).
The

Relator

substituted

the

judgment of the
set-aside
of

8(a)

further
conclusion

of

the

that

"the

SBA's

under

certification

must

Section 8(a),

by

mean

the

SBA

the

is
SBA

Otherwise,

senseless to require SBA certification for 8(a)
say,

Judge

for

the

in order to obtain

there

and

something.

Magistrate

investigation

[c]ourt." Obj. at 8. However,

contracts

"certification"

objects

a

requirement
alone.

it

This

would

be

companies while,

permitting self-certification for other small disadvantaged

businesses.'* Because the SBA has discretion both in certifying
and graduating or terminating
determine,
the

through

regulatory

simple

scheme,

8(a)

companies,

application of

whether

one

the

court

cannot

interpretation of

misrepresentations

by

Thermcor

^ Indeed, even for those businesses which can self-certify,
SBA determinations have significance.
It is clear that SBA
determinations are supposed to have some degree of finality, as
the SBA will not re-consider its previous certifications, unless
a protest presents credible evidence of a material change in
circumstances or of false or misleading application information.
13 C.F.R. § 124.1011(c). If a disadvantaged status determination
is to have any meaning, i t must permit some measure of reliance;
the

alternative

is

that

the

determination

is

not

a

determination

at all, but a guess that provides no finality for either the
business or the contracting party. Cf. 13 C.F.R. § 124.1013(h)
(describing
the
"[r]esults
of
an
SBA disadvantaged status
determination,"
which
"becomes
effective
immediately,"
and
automatically permits
the
award of
contracts
to
protested
concerns).

18

would be material

Thermcor

in

detailed

benefit

to

the

in

the

the

SBA's

program,
Letter,

provided

to

decision.

despite

makes

8(a)

The

the

this

SBA's

retention of

compliance

conclusion

participating

concerns

apparent.

companies

The

would

be

compromised if, after the SBA made a discretionary determination
of whether they were eligible for the program,

the participant

risked being dragged into court on an FCA claim simply because a

competing company disagreed with the SBA's decision.
The court does not articulate these policy considerations,

however,

to

say

representations

recovery

in a

that

like

qui

the

these

court
were

could

fraudulent.

tam action under

the

FCA,

that the actions may have been fraudulent;
to

the

claim

for

payment.

not

In

the

determine

that

Nevertheless,

it

is

not

for

enough

they must be material

case-at-bar,

there

is

a

regulatory mechanism providing for the SBA to use its discretion
in

evaluating

subjective

factors.

FCA

liability

here

would

interfere with other regulatory mechanisms and compromise their
policy

goals.

regulatory

Action

scheme,

by

and

the
it

SBA

is

is

discretionary

probably

under

so-designed

the

with

the

intention that businesses owned by disadvantaged individuals who
fail to dot every "i" and cross every "t" will not automatically

be

removed

from

the

program.

It

would

frustrate

the

policy

objectives of the 8(a)

program and the purposes of the FCA,

the

a

court

manipulated

regulation
19

that

vests

the

SBA

if

with

discretion and molded it

into a

participant's

conduct

be

the

fails

company

to
to

rigid test

that deems

in violation of

comply

with

a

the

FCA,

competing

an 8 (a)
whenever

business's

interpretation of the regulatory scheme and subsequently makes a
claim

for

payment.

The

court

OVERRULES

the

Relator's

second

objection.
C. Third and Fourth Objections

The

Relator

because partial
Al."

Obj .

at

objects

that

11.

The

Relator

recommendation

to

alleged

defrauding

the

of

"^simply

[M]agistrate
failures

to object."

4318968,

at

Hayslett v.

Va.

Mar.

them

30,

further.

grant

SDVOSB

and

Va.

No.

2016)).
However,

objects

summary

be

12,

7:14cv631,

the

court

judgment,

recommendations.

The

and
court

agrees

the

notes

20

waivers

2:15cvl72,

(Morgan,

court
that

the

J.)

will

i t has

2016

or
WL

(quoting

at

not

*2

(W.D.

discuss

reviewed de

together with the Magistrate
to the granting and denial

with

OVERRULES

fourth objections.

as

the

general

before

2016 WL 1296080,

Accordingly,

Magistrate

These

raised

No.

2016)

Judge's recommendations with respect

summary

erred

regarding

Id.

"treated

Colvin,

novo the full record in this case,

of

Judge

the

judgment

program."

should

Aug.

"to

arguments

Kearson v.

(E.D.

Colvin,

also

reiterate

[J]udge,'"

*2

Magistrate

summary judgment should be entered in favor of

Judge's

objections

"the

the
the

Magistrate
Relator's

Judge's

third

and

V.

This court,

having examined the Relator's Objections to the

Magistrate Judge's
respect
the

thereto,

R&R in

full.

R&R,

does

and having made ^

Accordingly,

Motion,

favor of

the Defendants,

DENIED.

The

ECF

Clerk

novo findings

with

hereby OVERRULE the Objections and ADOPT

Combined

is

CONCLUSION

No.

is

155,

as

requested

summary

in

the

Defendants'

is

GRANTED in

judgment

and the Relator's Motion,

DIRECTED

to

forward

a

ECF No.

copy

Opinion and Final Order to counsel for the parties.

IT IS SO ORDERED.

/s/

Rebecca Beach Smith
Chief Judge
REBECCA BEACH
CHIEF

July ^ , 2017

21

SMITH

JUDGE

of

158,

this