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Sevenson Environmental Services, Inc. v. Diversified Royalty Corp.

United States District Court, D. New Jersey, Camden Vicinage

October 16, 2018

DIVERSIFIED ROYALTY CORP., et al., Defendants.

          PHILLIPS LYTLE LLP By: Alan J. Bozer, Esq. Erin C. Borek, Esq. Counsel for Plaintiff

          DLA PIPER LLP (U.S.) By: Christopher M. Strongosky, Esq. John Vukelj, Esq. James V. Noblett, Esq. Counsel for Defendant Diversified Royalty Corp.



         This matter comes before the Court upon the Motions for Summary Judgment filed by Plaintiff Sevenson Environmental Services, Inc. and Defendant Diversified Royalty Corp.[1] For the reasons stated herein, Sevenson's motion will be granted in part and denied in part, and Diversified's motion will be denied.

         I. Facts

         Plaintiff Sevenson provides environmental clean-up and site remediation services. At all relevant times, Defendant Diversified was Sevenson's subcontractor at the Federal Creosote site. Federal Creosote was an EPA designated Superfund site occupying 53 acres in Manville, New Jersey. (Sevenson's Responsive Rule 56.1 Statement, Dkt. 416-1, ¶ 1) In the late 1990s, the EPA contracted with the U.S. Army Corp of Engineers to oversee remediation of the site. (Id. ¶ 3) The Army Corp, in turn, hired Sevenson as its prime contractor. (Id. ¶ 4) On January 28, 2000, the Army Corp and Sevenson executed the Preplaced Remedial Action Contract (“PRAC”). (McDermott Aff., Dkt 402-1, Ex. 1) The PRAC, in a section entitled “Antikickback Procedures, ” states:

(b) The Anti-Kickback Act of \9U (41 U.S.C. 51-53) (die Act), prohibits any person from -
(1) Providing or attempting to provide or offering to provide any kickback;
(2) Soliciting, accepting, or attempting Co accept any kickback;
(3) Including, directly or indirectly, the amount of any kickback in the contract price charged by a prime Contractor to the United States or in the contract price charged by a subcontractor to a prime Contractor or higher tier subcontractor.
(c)(1) The Contractor shall have in place and follow reasonable procedures designed to prevent and detect possible violations described in paragraph (b) of this clause in its own operations and direct business relationships.
(2) When the Contractor has reasonable grounds to believe that a violation described in paragraph (b) of this clause may have occurred, the Contractor shall promptly report in writing the possible violation. Such reports shall be made to the inspector general of the contracting agency, the head of the contracting agency if the agency does rot have an inspector general, or the Department of Justice.
(3) The Contractor shall cooperate fully with any Federal agency investigating a possible violation described in paragraph (b) of this Clause.
(4) The Contracting Officer may (i) offset the amount of the kickback against any monies owed by the United States under the prime contract and/or (ii) direct that the Prime Contractor withhold, from sums owed a subcontractor under the prime contract, the amount of any kickback. The Contracting Officer may order the monies withheld under subdivision (c)(4)(ii) of this clause be paid over to the Government unless the Government has already Offset those monies under subdivision (c)(4)(i) of this clause. In either case, the Prime Contractor shall notify the Contracting Officer when the monies are withheld.
(5) The Contractor agrees to incorporate the substance of this clause, including this subparagraph (c)(5) bur excepting subparagraph (c)(1), in all subcontracts under this contract which exceed $100, 000.

(McDermott Aff., Dkt 402-1, Ex. 1)

         In April 2001, Sevenson selected BEI[2] as its subcontractor for Phase I soil remediation. (Dkt 416-1, ¶ 22) There are no allegations in this suit that anything tortious or illegal occurred during Phase I.

         According to Diversified, the trouble began just before the competitive bidding process for Phase II remediation. In December 2001, BEI hosted “dozens of Sevenson employees and officers” at a National Hockey League game. (Dkt 416-1, ¶ 30) “BEI rented a suite at the arena, with catered food and an open bar.” (Id. ¶ 31) Robert Griffiths, BEI's sales agent, helped organize the event. (Id. ¶ 32) Defendant Gordon McDonald also attended the event; at that time Sevenson was “in the process of assigning [McDonald] to be the new project manager at Federal Creosote.” (Id. ¶ 35) BEI employees testified at their depositions that BEI hosted the hockey game “as an expression of thanks to Sevenson for” awarding BEI the Phase I contract, and in the “hop[e] that the hockey game would lead to more business at Federal Creosote.” (Id. ¶¶ 37-38)

         Not long thereafter, in February 2002, BEI, through Griffiths, purchased NBA All-Star Game tickets for Sevenson's President and CEO, Michael Elia. (Noblett Decl., Dkt No. 403-19, Ex. 16)

         Also around this time, during the first quarter of 2002, BEI submitted its initial bid for Phase II. (Dkt 416-1, ¶ 42) BEI undisputedly was not the lowest bidder. (Id. ¶¶ 46-49) Griffiths testified at his deposition that McDonald told Griffiths that BEI was not the low bid on the second phase, and offered Griffiths “the ‘last look' which would give [BEI] an opportunity to see all the competitors' prices . . . before submitting [BEI's] price in exchange for paying certain [expenses].” (Griffiths Dep. p. 89) McDonald also allegedly told Griffiths that there “could be” or “might be” an opportunity for BEI to “rebid” “based on th[e] new information.” (Id. p. 161)[3]

         Phase II was ultimately re-bid, and BEI submitted the lowest bid, even though its new bid price was $13.50 per ton greater than its initial bid. (Dkt 416-1, ¶¶ 71-72)[4] BEI was awarded the Phase II subcontract. (Noblett Decl., Dkt 417-14, Ex. 12) Importantly, the Phase II subcontract between Sevenson and BEI specifies that BEI will dispose of the treated soil from the Federal Creosote site “in a Subtitle C or equivalent landfill.” (Id.) It appears undisputed that the Phase II subcontract incorporates the anti-kickback provisions of the PRAC.[5]

         Thereafter, McDonald and Griffiths met at a cocktail lounge and agreed to divide the extra $13.50 thusly: “(1) 50% to cover non-reimbursable expenses; (2) 30% for entertainment expenses for Sevenson's employees and executives; and (3) 20% to BEI.” (Dkt 416-1, ¶ 73)

         While Phase II work was underway, “Griffiths arranged and paid for a [10-day] Mediterranean cruise for Sevenson's leadership.” (Dkt 416-1, ¶ 79) Both Griffiths and McDonald, and their wives, among others, went on the cruise. (Id. ¶ 80)

         Later, Sevenson conducted an internal investigation as to whether the trip violated anti-kickback laws. (Id. ¶ 90) “To avoid the appearance of impropriety, Sevenson decided that its executives would reimburse BEI for the cruise.” (Id. ¶ 92) The executives wrote individual personal checks to BEI, but the record is unclear as to whether BEI ever cashed those checks. (Id. ¶ 94) The parties also dispute whether the personal checks covered the total cost of the trip. (Dkt 416-1, ¶ 93)

         “After the cruise, senior management and employees of Sevenson continued requesting and accepting sporting event tickets and other gifts ...

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