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Kayleigh Scalzo

Kayleigh Scalzo represents government contractors in high-stakes litigation matters with the government and other private parties. She has litigated bid protests in a wide variety of forums, including the Government Accountability Office, U.S. Court of Federal Claims, U.S. Court of Appeals for the Federal Circuit, FAA Office of Dispute Resolution for Acquisition, Port Authority of New York and New Jersey, federal and state agencies, and state courts. She is also a co-head of the firm’s Claims, Disputes, and Other Litigation Affinity Group within the Government Contracts practice.

Kayleigh has particular experience navigating state and local procurement matters at both ends of the contract lifecycle, including bid protests and termination matters. In recent years, she has advised and represented clients in connection with procurements in Alaska, Arizona, California, the District of Columbia, Illinois, Indiana, Kansas, New Jersey, New York, Pennsylvania, Tennessee, Texas, and Virginia.

Kayleigh is a frequent speaker on bid protest issues, including the unique challenges of protests in state and local jurisdictions.

In a decision earlier this month, the Court of Federal Claims (“COFC”) found that an agency’s continued evaluation of bids during the pendency of a stay under the Competition in Contracting Act (“CICA”) neither violates CICA nor constitutes “a de facto override” of the stay.  The case is Caddell Construction Co. v. United States, Nos. 15-135 C, 15-136 C (Fed. Cl. Apr. 14, 2015).

The plaintiff, Caddell Construction Co., LLC (“Caddell”), had filed a pair of pre-award bid protests in the U.S. Government Accountability Office (“GAO”), challenging a State Department procurement to construct embassy facilities in Mozambique.  Caddell then filed separate actions at the COFC, claiming that the State Department violated CICA and carried out “an unlawful override” by “fail[ing] to stay the contracting process” while Caddell’s GAO protests were pending.  The State Department acknowledged that it indeed had been evaluating bids during the pendency of Caddell’s protest, but disagreed that doing so either violated CICA or functioned as an override of the stay.Continue Reading Agency’s Continued Evaluation of Bids Does Not Violate CICA Stay

Earlier this month the Solicitor General, on behalf of the Department of Housing and Urban Development (“HUD”), filed a petition asking the Supreme Court to review a March 2014 Federal Circuit decision holding that HUD cannot use cooperative agreements—and instead must use procurement contracts—to administer funds under Section 8 of the United States Housing Act of 1937. The petition is United States v. CMS Contract Management Services (No. 14-781).

Under Section 8, HUD maintains annual contribution contracts (“ACC”) with state and local public housing agencies (“PHA”) to administer $9 billion of federal housing assistance every year to low-income families. In 2011, HUD recompeted the ACCs nationwide, which triggered almost 70 protests in the Government Accountability Office (“GAO”) by PHAs that did not receive new ACCs. In response, HUD withdrew the protested ACC awards (which covered 42 states), and in 2012 announced a new competition for the ACCs, now explicitly characterized as cooperative agreements whose “purpose” was to assist state and local governments “in addressing the shortage of affordable housing.” A flurry of pre-award protests in the GAO followed, in which certain PHPs argued that HUD was not permitted to treat the ACCs as cooperative agreements, and instead needed to treat them as procurement contracts (subject to standard procurement regulations prohibiting certain allegedly anticompetitive terms of the ACC competition). The GAO agreed with the PHPs, but HUD opted not to follow the GAO’s recommendation. Undeterred, the PHPs brought their protest to the Court of Federal Claims, which sided with HUD. On appeal, the Federal Circuit reversed, coming to the same conclusion as the GAO that the ACCs needed to be treated as procurement contracts.Continue Reading HUD Asks Supreme Court to Revive Use of Cooperative Agreements for Section 8 Funds

This week, the U.S. Court of Appeals for the First Circuit declined to revive a False Claims Act qui tam suit against Baxter Healthcare Corporation, agreeing with the district court that the relators were not the “first to file.” The case is United States ex rel. Ven-A-Care of the Florida Keys, Inc. v. Baxter Healthcare Corp., Nos. 13-1732, 13-2083 (1st Cir. Dec. 1, 2014).

The first-to-file rule prevents an aspiring FCA relator from filing a suit that is similar or related to an already-pending qui tam suit. It derives from 31 U.S.C. § 3730(b)(5), which provides that “no person other than the Government may intervene or bring a related action based on the facts underlying” a pending qui tam suit. In the First Circuit, the first-to-file rule is jurisdictional, which allowed the appeals court here to dispose of the case on that ground alone and avoid a myriad of tricky issues wrapped up in this procedurally convoluted case. As the court noted, however, it is less clear whether other jurisdictions, like the D.C. Circuit, consider the first-to-file rule to be jurisdictional.

The would-be relators in this case were a former Baxter employee and an employee of a Baxter customer. In a 2005 suit, they alleged that Baxter, a pharmaceutical company, defrauded the Government by artificially padding the prices of its drugs, which triggered inflated reimbursements from Medicare and Medicaid. But a decade earlier, in 1995, a Florida pharmacy had filed a similar qui tam action alleging the same types of claims against multiple pharmaceutical companies, including Baxter. Baxter ultimately settled with the pharmacy, but not until 2011—6 years after the employee-relators filed their case. After extensive procedural skirmishing unrelated to the issue at hand, Baxter asserted that the employee-relators could not maintain their qui tam suit because the Florida pharmacy was the first to file.Continue Reading First Circuit Finds Pharma Relators’ Suit Ten Years Too Late Under First-to-File Rule

On October 15, 2014, the Center for Strategic & International Studies (CSIS) released a report on U.S. Department of Defense (DOD) contract spending between 2000 and 2013. The report analyzes publicly available information from the Federal Procurement Data System (FPDS) and thus does not consider classified contracts, which CSIS estimates to account for up to 10 percent of DOD contract spending.

The CSIS report focuses in particular on the effect of Fiscal Year 2013 sequestration on DOD spending. Overall, DOD-funded contract obligations decreased from 53% of overall DOD spending in 2012 to 49% in 2013, bringing DOD contract spending to its lowest percentage since 2002. The same period saw a 16% decrease in the volume of contract spending—4 times the percentage drop experienced during the budget drawdown from 2009 to 2012—despite the fact that DOD noncontract spending was relatively unchanged between 2012 and 2013.

CSIS measured a number of dimensions of DOD’s spending decreases during the 2012-2013 period:
Continue Reading CSIS Report Exposes Dramatic Decreases in DOD Contract Spending in 2013

Last month, the U.S. Court of Appeals for the First Circuit affirmed the award of a $50 million tax refund to Fresenius Medical Care Holdings, Inc. The court agreed with Fresenius that certain payments in settlement of alleged False Claims Act violations were tax-deductible. The case is Fresenius Medical Care Holdings, Inc. v. United States, No. 13-2144 (1st Cir. Aug. 13, 2014).

Fresenius operates dialysis centers within the United States and abroad, and in the mid-1990s its predecessor company faced an array of FCA whistleblower suits and related government investigations. Fresenius eventually settled both criminal and civil matters with the Government, agreeing to pay $385,147,334 to resolve the civil matters.

Fresenius claimed a tax refund based on the amount it paid to settle civil FCA claims. Civil FCA violations normally result in treble damages and a statutory penalty per false claim. Although the Government agreed that Fresenius could deduct an amount equal to single damages ($192,550,517) plus that amount owed to the whistleblowers ($65,800,555), Fresenius sued in the District of Massachusetts to seek a tax refund based on the remaining $126,796,262. A jury concluded that $95,000,000 of the remaining $126,796,262 was “compensatory” in nature and hence deductible, which resulted in a $50,420,512.34 tax refund for Fresenius.

The Government appealed, arguing that amounts paid in settlement of civil FCA claims—other than single damages and whistleblower payments—are nondeductible unless the parties enter into a tax characterization agreement indicating a mutual intent that those sums be deductible. The Government relied on a Ninth Circuit case, Talley Industries Inc. v. Commissioner, 116 F.3d 382 (9th Cir. 1997), in support. Because there was no tax characterization agreement in this case, the Government reasoned, Fresenius was owed no refund.

The First Circuit found the Government’s position unpersuasive in light of “generally accepted principles of tax law” to the contrary. Fresenius’s ability to deduct civil FCA settlement payments did not turn exclusively on the presence or absence of a tax characterization agreement. Instead, the district court had correctly instructed the jury to consider what portion of the settlement was compensatory, rather than punitive, “in terms of the economic realities of make-whole remediation.” Under well-settled rules of tax law, the compensatory portion was deductible.
Continue Reading First Circuit Affirms $50 Million Tax Refund for FCA Settlement Payments

On July 15, 2014, the U.S. Department of Defense (“DOD”) issued a proposed rule that imposes new requirements for third-party audits of three contractor business systems, as well as a requirement for contractors to self-report deficiencies uncovered in these audits or in internal reviews of these business systems. The three business systems at issue are