Whistleblower Says Ch. 11 Filing Can’t Delay Suit

Posted September 25th, 2017.

As It Appeared On
law360

By Rick Archer

Law360, New York (September 25, 2017, 6:52 PM EDT) — A relator accusing contractor Capitol Supply Inc. of selling the U.S. government Chinese-made office equipment on Monday asked a D.C. federal court to exclude his suit from Capitol’s bankruptcy stay.

Louis Scutellaro said the federal government’s partial intervention in his False Claims Act suit excludes his claims from the stay brought on by Capitol Supply’s bankruptcy filing last week, which Scutellaro claimed was a tactic to delay the suit.

“Relator contends that defendant’s strategy should not succeed, in light of established precedent that the automatic bankruptcy stay does not apply to False Claims Act cases brought by the United States — and, in certain cases, to actions brought by private relators who prosecute fraud claims on behalf of the United States,” he said.

Scutellaro alleges Capitol Supply sold the government Chinese-made paper shredders from Fellowes Manufacturing Co., as well as numerous other noncompliant products such as lightbulbs, light fixtures, thermostats, televisions, computer equipment, electric heaters, exhaust fans, batteries, vacuum cleaners, clocks and timers.

Scutellaro is seeking triple damages from the sale of noncompliant products in the amount of $14.7 million and statutory per-transaction penalties under the FCA in the amount of nearly $278 million.

The government intervened in the suit in April 2013 but only on the Fellowes shredders, and is looking for a much smaller payout: $367,419.84 in trebled damages from the sale of 588 Chinese-made shredders, plus $5.88 million in civil penalties.

Capitol Supply filed notice on Wednesday that it had filed for Chapter 11 protection in a Florida bankruptcy court, a move Scutellaro denounced in his motion.

“Defendant did not give plaintiffs advance notice of its financial condition or of its intention to file for bankruptcy protection, and relator strongly believes that defendant’s bankruptcy petition is merely a litigation tactic designed to delay the proceedings before the court, on the eve of trial,” he said.

Scutellaro said the government intervention on the shredder claims turned that portion of the suit into an enforcement action exempted from bankruptcy stays, and argued the law treats FCA claims by realtors the same as government claims.

“To be sure, although the United States has only partially intervened in relator’s suit, since the United States remains the ‘real-party-in-interest’ in every qui tam case, it is represented in the nonintervened claims as well, and will realize the vast majority — at least 70 percent — of any recovery on those claims,” he said.

Counsel for Scutellaro declined to comment. Counsel for Capitol Supply did not immediately respond to requests for comment late Monday.

Capitol Supply is represented by Adam J. Hodkin of Padula Hodkin PLLC.

The government is represented by Daniel P. Schaefer and Darrell C. Valdez of the U.S. Department of Justice.

Scutellaro is represented by H. Vincent McKnight and Cleveland Lawrence III of Sanford Heisler LLP, and John R. Thomas Jr. of Gentry Locke.

The case is Scutellaro v. Capitol Supply Inc., case number 1:10-cv-01094, in the U.S. District Court for the District of Columbia.

–Additional reporting by Stewart Bishop and Bryan Koenig. Editing by Catherine Sum.

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