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ALLEN v. BETA CONSTRUCTION

March 24, 2004.

MICHAEL M. ALLEN, Plaintiff,
v.
BETA CONSTRUCTION, et al., Defendants



The opinion of the court was delivered by: EMMET SULLIVAN, District Judge

MEMORANDUM OPINION AND ORDER

I. Factual and Procedural History

A. Parties

  Plaintiff Michael Allen was employed by defendants Beta Construction and Hampton Supply Inc. as the Director of Human Resources from February 1989 until May 1999.

  Defendant Beta Construction ("Beta") is a corporation engaged in the business of providing commercial roofing; Defendant Hampton Supply Inc.("Hampton") is a corporation engaged in the business of providing commercial roofing and waterproofing services; Defendant Peter Gordon Co. ("PGC") is a corporation engaged in the business of providing commercial roofing and waterproofing services. Defendant Integrated Roofing and Waterproofing, Inc. ("IRW") became the parent company of Beta and Hampton in August 1999.

  Defendant Paul C. Gordon ("Gordon") was, at all relevant Page 2 times, the President, CEO, and controlling shareholder of Beta, Hampton, and PGC. Defendant Jeremy O. Brown ("Brown") was at all relevant times Vice President for Finance or President of Hampton and Beta, as well as a shareholder in both companies.

  Allen brings this action as a qui tam relator under the False Claims Act ("FCA"). See 31 U.S.C. § 3730 (b)(1) (2003)(allowing a private person to bring an action for violation of the False Claims Act on behalf of the United States Government). On March 31, 2003, the United States filed notice declining to intervene in the case, and Allen continued the action as a private person. See March 31, 2003, Notice of United States of Election to Decline Intervention; see also 31 U.S.C. § 3730 (b)(4)(B)(allowing private person to continue action even if United States declines to intervene).

  Pending before the Court is defendants' Motion to Dismiss plaintiff's complaint, pursuant to Fed.R.Civ.P. 9(b), for failure to plead fraud with particularity, and Fed.R.Civ.P. 12(b)(6), for failure to state a claim upon which relief can be granted. Upon careful consideration of the motion, the response and reply thereto, as well as the governing statutory and case law, and for the following reasons, it is by the Court hereby ORDERED that defendants' Motion to Dismiss is DENIED. Page 3

  B. Complaint

  Plaintiff Allen alleges that he has "personal, direct and independent knowledge of the defendants' practice of presenting and/or submitting false statements and false claims to the federal government" in violation of the False Claims Act, 31 U.S.C. § 3729 et seq. Compl. ¶ 9. Specifically, plaintiff states that from 1989 to the present, defendants bid upon and were awarded sixteen federal government contracts for roofing and waterproofing. Compl. ¶ 16. Such contracts were subject to the wage and reporting requirements set forth in the Davis-Bacon Act, formerly codified at 40 U.S.C. § 276(c). Per federal regulations, defendants were required to pay workers prevailing wages, and weekly submit to the contracting federal agencies both payrolls and a Statement of Compliance certifying that "each laborer or mechanic" was paid "not less than applicable wage rates and fringe benefits or cash equivalents for the classification or work performed." 29 C.F.R. § 5.5(a) (3) (ii) (B)(3). Plaintiff alleges that defendants systematically defrauded the federal government by falsely certifying compliance with these requirements. Compl. ¶ 21.

  Specifically, plaintiff states that defendants directed plaintiff, in his capacity as Director of Human Resources, as well as other employees, to pay their laborers wages substantially below the applicable wage requirements, while also Page 4 directing plaintiff to falsely certify to the applicable federal agencies with whom they were contracting that defendants were paying their laborers the required wages. Compl. ¶ 23 ("Brown directed [plaintiff] to falsify weekly labor payroll records to eliminate or substantially reduce hours that were to be paid at the journeyman wage scale set by the Davis Bacon Act. These workers would instead receive a weekly paycheck based upon Gordon's and Brown's directive that these workers receive only average pay of approximately $13 to $15 per hour, although the work performed by these employees required them . . . to be paid at the scale for mechanics, $22 per hour."). This "scheme" involved falsifying labor payroll records, threatening employees who complained of insufficient wages, and issuing false certifications to federal agencies on more than 1500 occasions. Compl. ¶¶ 25-26. Plaintiff states that the difference in wages reported and the wages actually paid was fraudulently diverted to defendants as personal profits, a practice that resulted in false charges to the government in the amount of approximately $12 to $16 million, and that Gordon and Brown also diverted fringe benefits required to be paid to employees for their own personal use. Compl. ¶¶ 26, 28. Plaintiff also alleges that Gordon and Brown directed plaintiff and other employees to conceal this practice from government inspectors, and that defendants also purposely concealed information about the accurate pay scale from Page 5 their workers. Compl. ¶ 25.

  Plaintiff alleges that defendants engaged in several other fraudulent schemes. For example, plaintiff states that defendants falsely certified compliance with EPA regulations governing disposal of asbestos material. Compl. ¶¶ 29-30. Specifically, plaintiff avers that Defendants Brown and Gordon directed him to obtain an asbestos abatement license as part of his Human Resources Director function, but Gordon later directed plaintiff to transfer his licence to a shell Company, AR II Industries ("AR II"). AR II was subsequently listed as an independent asbestos removal subcontractor in defendants' federal contract bids, but asbestos roofing material was subsequently not disposed of in compliance with the awarded contracts or EPA regulations, and was instead improperly disposed of in Maryland landfills. Compl. ¶¶ 29-30. Finally, plaintiff states that defendants, in order to secure federal contracts, certified that contract work was performed by minority subcontractors, specifically William D. Euille and Associates, when in fact defendants simply paid the minority subcontractor to lend its name to contract bid documents. Compl. ¶ 31.

  Count I, Use of False Statements, alleges that by virtue of the acts described above, defendants knowingly presented, or caused to be presented to officers, employees, or agents of the United States false or fraudulent claims paid or approved by the Page 6 United States under contracts funded with federal monies, and used false records and statements to have the fraudulent or false claims paid. 31 U.S.C. § 3729(a).

  Count II, Presentation of False Claims, alleges that as a result of the alleged scheme described above, defendants recovered payment from the Federal Government for services pursuant to contracts and purchase orders that ...


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