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On December 18, 2024, the U.S. Attorney’s Office for the Western District of Texas announced a $680,000 False Claims Act (FCA) settlement with Lafayette RE Management LLC (Lafayette) in connection with the real estate investment firm’s receipt of a Paycheck Protection Program (PPP) loan at the height of the pandemic.  Crowell has previously reported on DOJ’s steady pursuit of PPP cases which have resulted in FCA settlements based on issues such as affiliation (discussed here) and ineligibility under the program’s rules (discussed here), but the Lafayette settlement is the first time that the government has intervened in a case based on the economic necessity certification that all PPP borrowers had to make on the initial loan application.  

According to the qui tam complaint filed in U.S. ex rel. Nunez-Unda v. Lafayette RE Management LLC, et al., No. 5:22-cv-000659 (W.D. Tex.), Lafayette is one of the nation’s largest single-family residential real estate asset managers with more than $900 million in assets under management.  In 2020, when completing an application for a $335,000 PPP loan, Lafayette certified that current economic uncertainty made the loan request necessary to support its ongoing operations.  The qui tam relator, a former partner at Lafayette, alleged that the company could not make this economic uncertainty certification in good faith because Lafayette had access to real-time data showing high occupancy rates and rents within its property portfolio.  Moreover, Lafayette allegedly had access to information about market trends which showed that single-family residential real estate would perform well during the pandemic.  The complaint also alleged that Lafayette was so confident in the performance of single-family property rentals during the pandemic that the company was actively investing in public securities in the residential real estate sector, which the relator alleged was evidence that Lafayette was not facing economic uncertainty and therefore should not have certified that it needed the PPP loan.

The government intervened in the suit for purposes of settlement, and Nunez-Unda will receive a relator’s share of $129,200.  The Nunez-Unda complaint is far from the first time that allegations about the economic uncertainty certification have been raised in a qui tam suit, but in prior instances the government has always declined.  In prior PPP cases, the government has targeted black-and-white conduct (e.g., claiming nonexistent employees) whereas the accuracy of the economic necessity certification is inherently more subjective.  Indeed, following the announcement of the FCA settlement, Nunez-Unda sat for an interview on the Fraud in America podcast in which he acknowledged the difficulty of proving that an economic uncertainty certificate is false because defendants only need to establish that they did not know what the future held at the time of the loan application at the height of the pandemic.  In contrast, for a relator or DOJ to prevail in an economic uncertainty case, they must establish that the applicant did not actually believe that economic uncertainty made the PPP loan request necessary—and yet applied for it anyway.  

As seen in the Nunez-Unda settlement, the potential for liability in economic necessity cases will be fact-specific and require attention to the loan applicant’s financial state-of-play and outlook at the time of the application.  The liability analysis will also require an assessment of the economic prospects of the applicant’s particular industry, and with PPP-related FCA cases arising from a broad range of industries (from advertising agencies to health plans to manufacturers), the sector-specific nature of these economic necessity cases will make them a trend worth following in the year ahead.  

We would like to thank Jessica Longoria for her contribution to this alert.

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Photo of Olivia Lynch Olivia Lynch

Olivia L. Lynch is a partner in Crowell & Moring’s Government Contracts Group in the Washington, D.C. office.

General Government Contracts Counseling. Olivia advises government contractors on navigating the procurement process, compliance and ethics, commercial item contracting, accessibility, supply chain assurance, and…

Olivia L. Lynch is a partner in Crowell & Moring’s Government Contracts Group in the Washington, D.C. office.

General Government Contracts Counseling. Olivia advises government contractors on navigating the procurement process, compliance and ethics, commercial item contracting, accessibility, supply chain assurance, and various aspects of state and local procurement law.

Photo of Jason Crawford Jason Crawford

When facing government investigations or high stakes litigation, clients trust Jason Crawford to evaluate allegations, identify risks, and formulate strategies to achieve the appropriate resolution. Jason advises and advocates for government contractors and companies from regulated industries in matters involving civil, criminal, and…

When facing government investigations or high stakes litigation, clients trust Jason Crawford to evaluate allegations, identify risks, and formulate strategies to achieve the appropriate resolution. Jason advises and advocates for government contractors and companies from regulated industries in matters involving civil, criminal, and administrative enforcement, with a particular focus on the False Claims Act (FCA).

As a litigator, Jason has defended government contractors, drug manufacturers, grant recipients, health care companies, importers, and construction companies sued under the FCA by whistleblowers and the Department of Justice (DOJ) in federal courts throughout the country. He also helps clients conduct complex internal investigations and respond strategically to Office of Inspectors General inquiries, grand jury investigations, search warrants, and civil investigative demands.

Jason previously served as a DOJ Trial Attorney in the Civil Division, Fraud Section where he investigated and litigated FCA cases involving government contractors, importers, and health care companies. He also previously worked with the U.S. Attorney’s Office for the District of Columbia where he prosecuted federal criminal cases.

A recognized thought leader on FCA developments, Jason has written and presented extensively on the fraud statute, and he is a co-host of the Let’s Talk FCA podcast.

Photo of Amy Laderberg O'Sullivan Amy Laderberg O'Sullivan

Amy Laderberg O’Sullivan is a partner in the firm’s Washington, D.C. office, a member of the Steering Committee for the firm’s Government Contracts Group, and former chair of the firm’s Diversity Council. Her practice involves a mix of litigation, transactional work, investigations, and

Amy Laderberg O’Sullivan is a partner in the firm’s Washington, D.C. office, a member of the Steering Committee for the firm’s Government Contracts Group, and former chair of the firm’s Diversity Council. Her practice involves a mix of litigation, transactional work, investigations, and counseling for corporate clients of all sizes and levels of experience as government contractors. On the litigation side, she has represented corporate clients in bid protests (agency level, GAO, ODRA, Court of Federal Claims, Court of Appeals for the Federal Circuit, as well as state and local bid protests in numerous jurisdictions), size and status protests before the U.S. Small Business Administration, claims litigation before the various Boards of Contract Appeals, Defense Base Act claims litigation at the Administrative Law Judge and Benefits Review Board levels, civil and criminal investigations, and she has been involved in complex commercial litigation.