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United States ex rel. Salomon v. Wolff

United States District Court, D. New Jersey

July 11, 2018

UNITED STATES OF AMERICA ex rel. HAROLD SALOMON, Plaintiff,
v.
DERISH M. WOLFF et ano., Defendants.

          OPINION

          JOSE L. LINARES Chief Judge, United States District Court

         This matter comes before the Court by way by the United States of America's Motion to Strike Affirmative Defenses pursuant to Rule 12(f) of the Federal Rules of Civil Procedure (ECF No. 156) and Motion for Partial Judgement on the Pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. (ECF No. 162). The United States ("Government") partially intervened in Plaintiff Harold Salomon's qui tam civil action on April 27, 2016. (ECF Nos. 2, 79). Defendants have opposed the Government's motions (ECF Nos. 169, 170), to which the Government has replied. (ECF Nos. 177, 178). The Court decides this matter without oral argument pursuant to Rule 78 of the Federal Rules of Civil Procedure. For the reasons set forth below, the Court denies both motions.

         I. BACKGROUND [1]

         Pursuant to the False Claims Act, 31 U.S.C. §§ 3729-3733 ("FCA"), Plaintiff Relator Harold Salomon ("Relator"), brought this qui tarn civil action seeking to recover monetary damages and civil penalties from Defendants for, inter alia, knowingly submitting or causing to be submitted false claims to agencies of the Government. (ECF No. 83, ("IC") ¶ 13). Relator worked for the Louis Berger Group Inc. ("LBG") from March 2002 to October 2005. (IC ¶ 15). While working for LBG, Relator prepared overhead rate statements submitted by LBG to the Government. (IC ¶ 16). The Government partially intervened in Relator's qui tam action under the FCA on April 27, 2016. (IC ¶ 20). Defendant Wolff contends that Government investigators and auditors received information from Relator months prior to his filing of the qui tam complaint. (ECF No. 169 at 2).

         Defendant Derish M. Wolff is presently a resident of Miami, Florida. (IC ¶ 21). He was the president and chief executive officer of LBG from 1982 to 2002, and chairman of the board of BG Holdings from 2002 to 2010. (Id.). Defendant Salvatore J. Pepe is presently a resident of Tuckahoe, New York and was the controller of LBG from 2000 to 2006, and chief financial officer of LBG from 2006 to 2009. (IC ¶ 24). Non-party Precy Pellettieri, an alleged co-conspirator, was the general accounting manager and assistant controller of LBG from September 2000 to May 2006, and controller of LBG from June 2006 to June 2009. (IC ¶ 27). The Government alleges that Defendant Wolff admitted, in his guilty plea, between 2003 and 2006 he was involved in the "journal entry" scheme discussed below, and that Defendant Pepe admitted, also in his guilty plea, to his involvement in the scheme between September 2001 to August 2007. (IC ¶ 86).

         "LBG is a New Jersey corporation with its corporate headquarters in East Orange, New Jersey." (IC ¶ 29). LBG has "over 3, 000 employees and operates more than 140 offices across the United States and throughout the world." (IC ¶ 30). LBG is in the business of construction, engineering, and environmental work performed outside of the United States. (IC ¶ 31).

         "Since September 11, 2001, LBG won several large [cost-plus][2] contracts for international reconstruction work in Afghanistan and Iraq," funded by the United States Agency for International Development ("USAID"). (IC ¶ 35). Compensation under a cost-plus contract is composed of reimbursement of direct costs and indirect costs, and payment of a fee. (IC ¶ 37).

         In this case, LBG had a single cost pool ("AA") for expenses such as payroll, accounting, executive management, rent, and insurance. (IC ¶ 58). The AA pool was divided into international and domestic costs. (IC ¶ 59). International costs were composed of Government costs involving direct labor from United States citizens ("GG") and costs for international contracts involving direct labor of foreign nationals ("GF"). (IC ¶ 59-60). The Government relied on LBG's certifications for its GG and GF costs in 1998 and 2002 to negotiate "Billing Rates" from Fiscal Year 1998 to Fiscal Year 2006 for contract payments to LBG. (IC ¶ 67-72). The shaded cells depicted below reflect the billing rates for the aforementioned fiscal years:

Fiscal Year

GG Rate Reported by LBG to Government in ICS

Billing Rate

1998

144.20 percent

143.10 percent

1999

146.60 percent

144.20 percent

2000

146.90 percent

144.20 percent

2001

144.98 percent

144.20 percent

2002

143.51 percent

143.51 percent

2003

147.04 percent

143.51 percent

2004

147.66 percent

143.51 percent

2005

140.79 percent

143.51 percent

2006

148.30 percent

143.51 percent [3]

         The Government alleges that Defendants "knowingly and falsely inflated" their overhead rates and, accordingly, "every claim for payment under a Government contract that relied on these rates constituted a false claim." (IC ¶ 73). According to the Government, Defendants "caused LBG to make thousands of such claims" between 2001 and 2006. (IC ¶ 73). For support, the Government points to claims submitted by LBG to USAID under a 2004 Iraq Vocational Training and Employment Services ("VTES") contract. (IC ¶ 35, 73). The table depicted below reflects a sample of invoices submitted by LBG to USAID:

         Exhibit B

VTES Invoice Number

Voucher Number

Invoice Date

Invoice Period

Billing Rate

Invoice Amount(s)

USAID Payment Amount (s)

1

52670299

12/20/2004

Oct-Nov.2004

143.51%

548, 398.86

516, 104.86

2

52670455

1/21/2005

Dec. 2004

143.51%

1, 100, 906.86

1, 100, 906.86

3

52670686

2/18/2005

Jan. 2005

143.51%

1, 580, 576.27

1, 580, 576.27

4

52970694

3/17/2005

Feb. 2005

143.51%

1, 489, 599.02

1, 489.599.02

5

52670840

4/18/2005

Mar. 2005

143.51%

1, 169.063.70

1.169, 063.70

6

52670979

5/20/2005

Apr. 2005

143.51%

1, 539, 200.88

1, 537, 201.68

7

52671136

6/17/2005

May 2005

143.51%

2, 182, 075.79

2, 168, 933.38

8

52671424

7/27/2005

June 2005

143.51%

1.785.775.39

1, 785.775.39

9

52671582

8/29/2005

July 2005

143.51%

2, 082.361.30

2.082, 361.30

10

62670118

9/29/2005

Aug. 2005

143.51%

2, 299, 961.24

2, 299, 961, 24

11

62670203

10/27/2005

Sept. 2005

143.51%

2, 567, 709.61

2.567, 709.61

12

26706122TD

11/30/2005

Oct. 2005

143.51%

1, 843, 237.36

1, 843, 237.36

          The Government further alleges that Defendants "conspired to bill indirect costs ... at falsely inflated overhead rates." (IC ¶ 78-79). The Government also asserts that Defendants falsified their "overhead rate statements/proposals, Billing Rate proposals, and related cost accounting data," by allocating indirect costs directly to the GG pool and manipulating costs in the allocation base of the overhead rate. (IC ¶ 79-80).

         Under the Federal Acquisition Regulation and the terms of LBG's contracts, "LBG may directly allocate indirect costs to the GG cost center only if: (a) such costs were incurred specifically and exclusively in support of GG work, and (b) LBG has not indirectly allocated other such costs, incurred for the same purpose in like circumstances, to the GG cost center through the AA allocation procedure." (IC ¶ 81). However, the Government alleges that Defendants "conspired to violate this requirement" through "improper use of accounting codes GG997A and GG997B" in two ongoing costs schemes. (Id.).

         The first alleged scheme occurred in LBG's East Orange headquarters in New Jersey through the GG997A accounting code. The GG997A code was created to "capture costs" incurred by the headquarters "that specifically and exclusively benefitted LBG's international Government contracts." (IC ¶ 82). Indirect costs that benefitted all of LBG's divisions, such as salaries for executive management and corporate labor, should have gone to the AA pool first and then allocated to GG997A in proportion to the direct labor used on GG contracts. (IC ¶ 83). The Government further asserts that Defendants conspired to use GG997A to "charge the Government more than its fair share of corporate headquarters costs." (IC ¶ 83). The Government specifically alleges that Defendants and Pellettieri billed time to GG997A, despite the fact that ...


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