The U.S. Supreme Court has agreed to review Kousisis v. United States, in which the Court may apply federal mail and wire fraud statutes where a contractor utilized a qualified disadvantaged business enterprise (DBE) as a front – i.e., the DBE did not actually perform any contracted for work.
Central to the dispute before the Court is whether using deception to bring about a commercial exchange can constitute mail or wire fraud, even if the scheme was not intended to inflict economic harm on the alleged victim and the alleged victim received the goods or services promised.
As background, in order to be permitted to do public works projects in Philadelphia, Stamatios Kousisis and his company, Alpha Painting & Construction Co., Inc., used a front DBE that did not perform any contract work. Kousisis argues that the structure did not constitute wire or mail fraud because there was no intent to cause economic harm. Further, the defendants argue that the government was not deprived of property because the contracted for work was actually performed, just not by the DBE.
This calls into question what deprivation and property can mean. Even if the work was completed, and well, it could be argued that the government, through “fraudulent inducement,” was deprived of the opportunity to contract a DBE to perform the work. Additionally, government property has been defined to include any right or other intangible interest purchased with Government funds, including contractor services. So, while the goods or services were provided, it could be argued that the government was deprived of property when the service was not provided in the requested manner.
The case raises key issues relevant both to private contractors and government contractors, including what counts as a property interest when compliance is a material term of payment and whether all contract rights count as “property.” The case also has implications for fraudulent inducement as a theory of liability – and for the distinction between civil and criminal liability. Given recent developments concerning the “materiality” of representations in the context of the Federal False Claims Act, a determination that the government has no property interest in DBE type requirements may have knock-on implications with respect to future FCA enforcement and litigation.
If you are a business providing goods and services to the government, talk to Warner PLLC for guidance on contracts, terms, and compliance. With an extensive background in Government Contracting law, we can assist throughout all procurement and performance life-cycle phases, including proactively addressing government-led audits and investigations.
