Second Circuit Closes Down Government's "Materiality Manufacturing"

As 2020 drew to a close, the Second Circuit issued one of the most consequential materiality decisions of the year. In United States v. Strock, No. 19-4331, 2020 WL 7062274 (Dec. 3, 2020), the court held that the relevant "payment decision" under Escobar, at least in fraudulent inducement cases, includes both the government's decision to award a contract in the first instance and the subsequent decisions to pay claims under the contract. The court also emphasized that post-payment enforcement efforts are of little probative value in determining materiality as they allow the government to engage in consequence-free "materiality manufacturing."

The government in Strock alleged that the defendants fraudulently induced the government to award a contract reserved for service-disabled veteran-operated small businesses (SDVOSBs) by mispresenting their status as a SDVOSB. The defendants moved to dismiss on materiality grounds, arguing there was no allegation that the