Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

United States ex rel. Hedley v. Abhe & Svoboda, Inc.

United States District Court, D. Maryland

March 19, 2018

UNITED STATES OF AMERICA, ex rel. JOSEPH M. HEDLEY and FRED A. RAUCH, III, Plaintiffs,
v.
ABHE & SVOBODA, INC., Defendant.

          MEMORANDUM OPINION

          Richard D. Bennett, United States District Judge

         On June 15, 2006, the Maryland State Highway Administration (“MSHA”) notified Defendant ABHE & Svoboda, Inc. (“ASI”) that it submitted the lowest bid for a contract to clean and repaint the Severn River Bridge[1] (the “Contract”). Over almost the next two and a half years, MSHA paid ASI under the Contract until January 13, 2009 when MSHA approved the final payment. Over two years later, on April 25, 2011, Fred A. Rauch, III and Joseph M. Hedley (“Relators”) filed a Complaint in the United States District Court for the Southern District of Illinois against ASI under the False Claims Act, 31 U.S.C. §§ 3729, et seq., alleging that ASI falsely represented to MSHA that it used a Disadvantaged Business Enterprise (“DBE”) subcontractor under the Contract. (ECF No. 1.) The United States initially elected to intervene in this action (ECF No. 18), but subsequently withdrew its intervention in 2013 (ECF No. 50).

         Since filing their initial Complaint in the Illinois Court, the Relators Rauch and Hedley have filed First, Second, and Third Amended Complaints. Through this Court's rulings on ASI's Motions to Dismiss, the Relators were permitted discovery with respect to three claims under the False Claims Act. Ultimately, at the conclusion of all discovery, on August 8, 2017, ASI filed the instant Motion for Summary Judgment on all three claims. (ECF No. 144.) The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the following reasons, ASI's Motion for Summary Judgment (ECF No. 144) is GRANTED and Judgment is ENTERED in favor of the Defendant ABHE & Svoboda, Inc.

         BACKGROUND

         I. Procedural background

         In ruling on a motion for summary judgment, the court reviews the facts and all reasonable inferences in the light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378 (2007); Hardwick ex rel. Hardwick v. Heyward, 711 F.3d 426, 433 (4th Cir. 2013). This action arises from a contract between Defendant ASI and the Maryland State Highway Administration (“MSHA”) for the cleaning and repainting of the Severn River Bridge (the “Contract”). On April 25, 2011, Fred A. Rauch, III and Joseph M. Hedley (“Relators”) filed a Complaint against ASI under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729, et seq., alleging that ASI falsely represented to MSHA that it used a Disadvantaged Business Enterprise (“DBE”) subcontractor under the Contract. (ECF No. 1.) As relators, Rauch and Hedley initially filed this action in the United States District Court for the Southern District of Illinois. After the United States elected to intervene (ECF No. 18), it filed a First Amended Complaint alleging violations of the FCA and various state law claims (ECF No. 19). ASI subsequently filed a Motion to Dismiss the First Amended Complaint, or alternatively, transfer this case to this Court pursuant to 28 U.S.C. § 1404(a). (ECF No. 33.) While that Motion to Dismiss was pending, the United States moved to withdraw its intervention, which was granted by the United States District Court for the Southern District of Illinois. (ECF Nos. 50, 52.)

         The Relators continued to pursue this action, now standing in for the Government without Government participation. After the case was transferred to this Court, [2] ASI filed a renewed Motion to Dismiss. (ECF No. 76.) On July 31, 2015, this Court granted ASI's Motion to Dismiss, dismissing Relators' FCA claims without prejudice (Counts I-III) and dismissing Relators' state law claims with prejudice (Counts IV, V, VII). (ECF Nos. 84, 85.) This Court subsequently permitted the Relators to file a Second Amended Complaint (ECF No. 93), and ASI filed a Motion to Dismiss Relators' Second Amended Complaint (ECF No. 97). On July 29, 2016, this Court denied ASI's Motion to Dismiss Relators' Second Amended Complaint, explaining in part that ASI's Motion focused heavily on the Relators' failure to prove their claims, not their failure to sufficiently allege their claims under the heightened pleading standard of Federal Rule of Civil Procedure 9(b). (ECF No. 102.) On December 1, 2016, Relators filed a Third Amended Complaint (ECF No. 123), and two weeks later ASI filed an Answer (ECF No. 124). Discovery ensued, and on August 8, 2017, ASI filed the instant Motion for Summary Judgment. (ECF No. 144.)

         II. Factual Background

         While considering the facts and all inferences in the light most favorable to the Relators Rauch and Hedley, it is important to note how these two Relators became involved with ASI and the Contract to clean and repaint the Severn River Bridge. Prior to MSHA's solicitation for bids for the Contract, ASI became a creditor of Brighton Painting Company (“Brighton”), its owners, and related entities. (Hedley Aff., ECF No. 149-9 at ¶ 3.) The Relators in this case, Joseph Hedley and Fred Rauch, are Brighton's two owners. (Id. at ¶ 2.) The parties agreed that Brighton could repay its debt by managing various projects for ASI and applying profits derived from those projects to the debt. (Id. at ¶ 4.) This agreement ultimately led to Brighton and the Relators' participation under the Contract. (Id. at ¶ 5.)

         In April of 2006, MSHA began advertising for bids for the Contract. (ECF No. 145-1 at 32.) The Contract was substantially funded by the Federal Highway Administration (“FHA”) within the United States Department of Transportation (“DOT”). The Contract included an affirmative action requirement to utilize Disadvantaged Business Enterprises (“DBEs”). (Id. at 52.) Specifically, the Contract included a 15 % DBE participation goal and stated:

It is the policy of the Maryland Department of Transportation that disadvantaged business enterprises as defined in 49 CFR Part 26 and the Transportation Equality Act of 1998 (TEA-21) shall have an equal opportunity to participate in the performance of the contracts financed in whole or in part with Federal funds under these agreements. Consequently, the disadvantaged business enterprise requirements of 49 CFR Part 26 and TEA-2 1 apply to this agreement. . . .
The bidder shall seek commitments from disadvantaged business enterprises by subcontracting and/or procurement of materials and/or services, the combined value of which equals or exceeds the appropriate percent (goal) of the total value of the prime contract. A bidder may count toward its DBE goals expenditures for materials and supplies obtained from DBE regular dealers and/or manufacturers provided that the DBEs assume the actual and contractual responsibility for the provision of the materials and supplies. The bidder may count its entire expenditure to a DBE manufacturer (i.e., a supplier that produces goods from raw materials or substantially alters them before resale). The bidder may count sixty (60) percent of its expenditures to a DBE regular dealer, that is not a manufacturer, provided that the DBE supplier performs a commercially useful function in the supply process.

(Id. at 52, 54.)[3] The Contract further provided that once a party was notified by MSHA that it was the apparent low bidder, the bidder was required to submit an Affirmative Action Plan (“AAP”) for the utilization of DBEs during the Contract. (Id. at 54-55.) The Contract specified that a contract would not be awarded without the approval of the bidder's AAP. (Id. at 55.) The AAP needed to include, at a minimum, a Schedule for Participation of the certified DBE and a DBE Project Disclosure and Participation Certificate for each DBE listed in the Schedule for Participation. (Id.) However, DBE participation was not an absolute requirement for the Contract. Indeed, the Contract stated that “[w]here the proposed DBE participation does not meet the DBE contract goals, information sufficient to demonstrate that the bidder has made good faith efforts to meet these goals shall be required.”[4] (Id.) Further, if the bidder was unable to secure from the DBE(s) commitment(s) that at least equaled the DBE participation goal, the bidder was required to submit a waiver for the unmet portion of the goal, for the Administrator to consider. (Id.) Once awarded the Contract, the Contractor was required to keep and submit records necessary to determine DBE compliance. (Id. at 56-67.) These records included quarterly reports and monthly reports listing unpaid invoices from all certified DBE subcontractors. (Id. at 57-58.) The Contract stated that failure to submit the quarterly reports “may result in a finding of noncompliance.” (Id. at 57.) If a party was found in noncompliance, the administrative procedures for enforcement then gave MSHA discretion to choose a sanction, including (1) suspension of work on a project, pending correction; (2) withholding payment or a percentage thereof, pending correction; (3) referral to different agencies for further action; or (4) any other sanction as appropriate. (Id. at 58.)

         On June 15, 2006, ASI submitted its bid to MSHA. (ECF No. 145-2.) Pursuant to ASI's arrangement with Brighton, the parties informally agreed that Brighton would help with the execution of the Contract, “essentially act[ing] as an agent of ASI by managing the job and ensuring it was completed timely and correctly.” (Defs. Mem., ECF No. 144-1 at 6.) In its bid, ASI asserted that in order to reach the 15% DBE goal, it would use Northeast Work & Safety Boats, LLC (“NWSB”) for “work platforms, work boats, and engineer's boat.” (ECF No. 145-2 at 20.) ASI would pay NWSB $1, 569, 200.00, representing 15.16% of the total Contract value. (Id. at 20-21.) Specifically, ASI represented on its proposed Schedule of Participation that “I certify that I/we intend to achieve the goal stated in this contract and will use the MDOT certified MDE/DBE subcontractors/suppliers listed in Part II to accomplish the goal.” (Id. at 20.) ASI listed NWSB in Part II and stated that the items of work would be “work platforms, work boats, and engineer's boat.” (Id.) Gail Svoboda, President of ASI, testified however that ASI could have still received the bid even if it did not meet the DBE requirement, if pursuant to the Contract it made a good faith effort to meet the goal. (Svoboda Dep., ECF No. 146-1 at 10, 64.) That day, on June 15, 2006, ASI learned that it submitted the lowest bid. (ECF No. 149-13.)

         On June 20, 2006, ASI submitted its Affirmative Action Plan (“AAP”), which included a Schedule for Participation of DBE and DBE Disclosure and Participation Certificate. (ECF Nos. 149-14, 149-15.) On both documents, ASI indicated that NWSB's work or service would be “Engineer's Boat, Safety Rigging.” (Id.) At the time ASI submitted these two documents, however, ASI had not actually negotiated the specifics of its contractual arrangement with NWSB. (ECF No. 146-1 at 62-63.) The Contract, however, was formally awarded to ASI and executed on August 11, 2006. (ECF No. 145-1 at 2.) Subsequently, a subcontract was entered into between ASI and NWSB on October 16, 2006. (Id. at 125; ECF No. 146-13.) Gail Svoboda testified that about a month later, ASI began working on the bridge. (ECF No. 146-1 at 125.)

         Relator Hedley has testified that in August or September of 2006, after ASI was awarded the Contract, Gail Svoboda told Hedley about the Relators' alleged fraudulent DBE scheme. (Hedley Aff., ECF No. 149-9.) Hedley claims that over a telephone call, he learned that ASI was unable to secure a DBE to satisfy the Contract's 15% DBE participation goal. Instead, ASI reached an agreement with DBE subcontractor NWSB to falsely represent to MSHA that it would, and did, comply with the DBE participation goal. In practice, however, ASI and Brighton would complete all work purportedly subcontracted to NWSB. Specifically, ASI and Brighton rather than NWSB would hire employees from the local union, place them on NWSB's payroll, supervise their work, and front payment for their salaries to make it appear that NWSB had performed the work. With respect to materials and supplies, ASI would negotiate prices, choose quality and quantity of materials, and then when ordering the materials, direct suppliers to invoice NWSB. ASI would then front money to NWSB to make it appear that NWSB bought the materials and supplies. In return, NWSB was guaranteed an 8% markup on all materials purchased through and payroll processed under NWSB's name.

         Although work on the bridge did not begin until the Fall of 2006, ASI's first DBE quarterly report was due on July 15, 2006, (ECF No. 147-9), but it was not submitted on that date. (ECF No. 149-49.) In fact, ASI did not submit DBE quarterly reports for over one year through October of 2007. (Id.) On January 14, 2008, after making payments to ASI for almost one and a half years, MSHA sent ASI a letter advising it of its reporting responsibilities. (ECF No. 147-9.) Still, ASI did not submit a DBE quarterly report. (ECF No. 149-49.) Despite not submitting the reports, MSHA continued payments to ASI under the Contract. In fact, MSHA paid ASI more than $9, 000, 000 of the total $10, 381, 640 under the Contract between November of 2006 and August of 2008 without receiving any DBE quarterly reports. (ECF No. 144-1 at 12; ECF No. 147-4.) MSHA sent additional letters to ASI on August 7, 2008 and September 17, 2008. (ECF No. 149-49.) The September 17, 2008 letter finally placed ASI in noncompliance and stated that if ASI did not submit the requested information within seven days, the failure to do so could result in further action, up to and including suspension of payment until the requested documents were received. (Id.) In response, ASI submitted the quarterly reports. (ECF No. 148-1.) Three months later, on December 5, 2008, ASI applied for final payment under the Contract. (ECF No. 148-5.) On December 14, 2008, MSHA approved ASI's request to sublet “items” to NWSB in the form of “engineers boat” for $41, 600.00 and “cleaning & painting bridge” for $1, 527, 600.00. (ECF No. 147.) Specifically, the approval stated that based on the recommendation of the “Division Chief, Office of Bridge, ” the Director, Office of Construction stated that the Contract and award amount were “ok to process; proposed sub[contractor] is MDOT certified MBE; proposed MBE participation goal of 15.12% met w[ith] this request.” (Id.) On January 13, 2009, the Director, Office of Construction then recommended final payment and acceptance of the construction project. (ECF No. 149-53).

         STANDARD OF REVIEW

         Rule 56 of the Federal Rules of Civil Procedure provides that a court “shall grant summary judgment if [a] movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). A material fact is one that “might affect the outcome of the suit under the governing law.” Libertarian Party of Va. v. Judd, 718 F.3d 308, 313 (4th Cir. 2013) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A genuine issue over a material fact exists “if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Anderson, 477 U.S. at 248. To make this showing, the non-moving party must “do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

         In ruling on a motion for summary judgment, a court must consider the facts and all reasonable inferences in the light most favorable to the non-moving party. Judd, 718 F.3d at 312; see also Scott v. Harris, 550 U.S. 372, 378 (2007). Further, the court “must not weigh evidence or make credibility determinations.” Foster v. University of Md.-Eastern Shore, 787 F.3d 243, 248 (4th Cir. 2015) (citing Mercantile Peninsula Bank v. French, 499 F.3d 345, 352 (4th Cir. 2007)); see also Jacobs v. N.C. Administrative Office of the Courts, 780 F.3d 562, 569 (4th Cir. 2015) (explaining that the trial court may not make credibility determinations at the summary judgment stage). However, “[a] party opposing a properly supported motion for summary judgment ‘may not rest upon the mere allegations of denials of [his] pleadings, ' but rather must ‘set forth specific facts showing that there is a genuine issue for trial.'” Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (quoting Fed.R.Civ.P. 56(e)). When ruling on a motion for summary judgment, it is the “‘affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial.'” Id. (quoting Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993)).

         ANALYSIS

         I. The False Claims ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.