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United States of America, Ex Rel. v. Service Contract Education and Training Trust Fund

February 13, 2012

UNITED STATES OF AMERICA, EX REL.
GORDON GREEN, PLAINTIFF,
v.
SERVICE CONTRACT EDUCATION AND TRAINING TRUST FUND, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Richard W. Roberts United States District Judge

MEMORANDUM OPINION

Gordon Green filed a complaint against the Service Contract Education and Training Trust Fund ("SCETTF"), the Laborers' International Union of North America ("LIUNA"), and twenty-nine government contractors, alleging that the defendants violated the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33, by engaging in a scheme to defraud the United States by submitting false and fraudulent claims concerning fringe benefit programs that SCETTF, at the behest of LIUNA, provided to the contractor defendants in connection with federal service contracts. The United States elected not to intervene in the action. Following notice of that decision, Green dismissed voluntarily his claims against twenty-four of the contractors. SCETTF, LIUNA, and four of the five remaining contractors --- Integrity Management Services, Inc., Crothall Healthcare, Inc., Kentucky Building Maintenance, Inc., and National Maintenance, Inc. (the "contractor defendants") --- moved to dismiss the complaint for lack of subject matter jurisdiction and failure to state a claim.*fn1 Green's complaint alleges two bases for concluding that defendants misrepresented to government officials that training the defendants provided qualified as a bona fide fringe benefit under applicable law: first, because the contractor defendants were reimbursed for a substantial portion of training costs, and second, because the contractor defendants used on-the-job training funds to compensate employees for work required under their government contracts. Because Green's reimbursement claim is based upon the public disclosure of transactions from the news media and Green is not an original source of the information underlying his allegations, that claim will be dismissed for lack of subject matter jurisdiction.*fn2 The on-the-job training claim will be dismissed because Green fails to plead fraud with particularity.

BACKGROUND

The complaint and accompanying materials set forth the following allegations and background. Green was employed by defendant LIUNA as its International Representative from 1999 through 2001 and employed by defendant SCETTF as its Director from 2001 through 2004. (Compl. ¶ 4.) LIUNA is an international labor union for workers in a variety of fields, including in the service industries. (Id. ¶ 7.) SCETTF was established by LIUNA in 1978 to provide training and educational opportunities for LIUNA's members. (Id. ¶¶ 8-10.) To join SCETTF, a contractor must have a collective bargaining agreement ("CBA") with LIUNA representing its service employees. (Id. ¶ 28.) Membership in the two organizations thus is linked. When a contractor becomes a member of LIUNA, it executes an agreement with LIUNA providing that the contractor will submit contributions to SCETTF in accordance with a set schedule and that both the contractor and LIUNA will be bound by SCETTF's Agreement and Declaration of Trust. (Id. ¶ 29.) In addition, the contractor executes an agreement with SCETTF that obligates it to contribute to SCETTF the compensation from its government contracts that go toward the costs of those fringe benefits financed by SCETTF. (Id. ¶ 30.) Integrity Management Services, Crothall Healthcare, Kentucky Building Maintenance, National Maintenance, and Hospital Klean are each commercial contractors that, at relevant times, were members of LIUNA, were members of SCETTF, and contracted with government agencies to provide services. (Id. ¶ 12.)*fn3 Green's complaint alleges that SCETTF, LIUNA, and the defendant contractors defrauded the federal government by providing and conspiring to provide claims, records, and statements that falsely or fraudulently represented that fringe benefits provided to the contractor's employees complied with the standards of the McNamara-O'Hara Service Contract Act of 1965, Pub. L. 89-286, 79 Stat. 1034, 41 U.S.C. § 351 et seq. (the "SCA")*fn4 and related Department of Labor ("DOL") regulations.

The SCA applies to certain contracts between an employer and the United States that have the principal purpose of furnishing services by service employees. The DOL administers the SCA, and is responsible for determining wage standards for workers in the services industries. (Id. ¶¶ 14-17.) The SCA provides, in relevant part:

Every contract . . . entered into by the United States or the District of Columbia in excess of $2,500 . . . the principal purpose of which is to furnish services in the United States through the use of service employees, shall contain . . . [a] provision specifying the fringe benefits to be furnished in the various classes of service employees, engaged in the performance of the contract or any subcontract thereunder[.]

41 U.S.C.A. § 351(a)(2) (2010). The SCA treats the provision of fringe benefits to employees covered by a CBA in a distinct manner. "[W]here a collective-bargaining agreement covers any such service employees," the provision specifying the fringe benefits to be furnished is "to be provided for in such [collective-bargaining] agreement, including prospective fringe benefits increases provided for in such agreement as a result of arm's-length negotiations." Id. The SCA defines fringe benefits non-exhaustively as follows:

Such fringe benefits shall include medical or hospital care, pensions on retirement or death, compensation for injuries or illness resulting from occupational activity, or insurance to provide any of the foregoing, unemployment benefits, life insurance, disability and sickness insurance, accident insurance, vacation and holiday pay, costs of apprenticeship or other similar programs and other bona fide fringe benefits not otherwise required by Federal, State, or local law to be provided by the contractor or subcontractor.

Id. In addition, the SCA permits the federal government to reimburse a government contractor for a plan providing fringe benefits to its employees negotiated with its unions under a CBA. (Compl. ¶ 19.) Additional regulations require that "the contractor's contributions for the benefits must be paid irrevocably to a trust fund or third person pursuant to an insurance agreement, trust or other funded arrangement," and that "the trust or fund must be set up such that the contractor will not be able to (i) recapture any of the contributions paid, nor (ii) in any way divert the funds to its own use or benefit." (Id. ¶ 21 (citing 29 C.F.R. 4.171(a)(4)).)

A contractor with a CBA presents the information regarding the fringe benefits to be provided by submitting a form known as an "Addendum A" to a federal agency from which it seeks a services contract. (Id. ¶¶ 23-24.) When the federal agency awards a contract, that contract includes a provision specifying the fringe benefits to be furnished, and the contractor is compensated for the cost of the fringe benefits as part of the contract. (Id. ¶ 25.) The DOL Division of Wage Determinations maintains information regarding the terms of the service contract, including the fringe benefits agreed upon in a CBA. (Id. ¶ 26.)

Green alleges that the defendants engaged in a fraudulent scheme whereby each of the defendant contractors made contributions to SCETTF in the amounts paid to the contractors by the federal agencies with which they contracted and then SCETTF returned to the defendant contractors ninety percent of those contributions. (Id. ¶¶ 34-35.) While the purported purpose of the refund was to finance the contractors' provision of on-thejob training, classroom training, and third party training (id. ¶¶ 36, 45), the complaint alleges:

At all times pertinent to this Complaint, those portions of above described recaptured contributions allocated by the Participating Contractors for on-thejob training were, in truth and in fact, used to compensate employees for performing tasks required by the contractors' service contracts, and thus were diverted by the Participating Contractors to their own use and benefit[.] (Id. ¶ 46.) The complaint further alleges that purported fringe benefits described as on-the-job training and class room training "did not meet the definition of 'fringe benefits,' and did not provide any effective or substantial benefit to the contractors' employees," regardless of whether those benefits were financed by the "recaptured contributions." (Id. ¶ 47.)

In support of these claims, the complaint describes an SCETTF promotional website, established around 2003 and accessible until the date the complaint was filed, that allegedly demonstrated that the purpose of the trust fund was to enable participants to recapture and divert ninety percent of their contributions for training. (Id. ¶¶ 37-43.) The website compares two hypothetical companies, one of which is an SCETTF participant and one of which is not. The non-participant, Company A, is listed as having specified hourly costs for an employee's "wages," "health insurance," "pension," and "training," and does not receive "government reimbursement" or "trust fund reimbursement." Company B has the same costs, but is reimbursed twenty cents by the government and eighteen cents by the trust fund, SCETTF. Green alleges that the promotional website illustrates that the goal of SCETTF was to enable a contractor to recapture ninety percent -- eighteen cents in the hypothetical -- of the contractors' contributions to SCETTF, which are represented in the hypothetical by the twenty cents of government reimbursement for those contributions. (Id. ¶ 43.) Green alleges that, as a result, SCETTF enabled the contractors "to incur no expenses whatsoever for fringe benefits, by allowing them to provide no real or effective training." (Id. ¶ 44.)

In sum, Green alleges that the defendant contractors fraudulently induced federal agencies to enter contracts by submitting records in the form of the "Addendum A" to federal agencies containing statements that the defendant contractors had CBAs with LIUNA and that the contractors' service employees were to receive fringe benefits financed by SCETTF of specified costs. Green contends that such representations were "false and fraudulent when so submitted as these [defendant contractors] then knew that they did not intend to provide such fringe benefits." (Id. ¶ 48.) Further, Green alleges that the defendants negotiated service contracts with federal agencies that included compensation for the provision of the above-described fringe benefits, knowingly presented under the contracts claims for payment in the form of periodic "Vouchers for Services" to federal agencies that included compensation for the provision of such fringe benefits, and knowingly and deliberately failed to provide such fringe benefits to their service employees under the service contracts. (Id.) Green alleges that the federal agencies that negotiated, awarded, and made payments under service contracts with the defendants "relied upon the Addendum A records and the statements within such records" in determining whether to award the contracts and the compensation for the contracts. (Id. ¶ 49.) Green's complaint lists several high-level individuals at LIUNA and SCETTF "who were aware of, approved of, and participated in the fraudulent activity described in th[e] Complaint." (Id. ¶ 11.) He alleges that a "Contact Person" for each defendant contractor "knowingly participated in, or knowingly executed the agreement whereby his Contractor participated in the SCETT Fund, including its specified provision for on-the-job training, classroom training, and third party training." (Id. ¶¶ 12-13.)

The complaint alleges that the defendants concealed the scheme by forwarding to the DOL's Division of Wage Determinations information about the service contracts that contained false representations about fringe benefits. (Id. ¶¶ 50-51.) The information provided to the DOL was allegedly "material" to the decisions of the federal agency to award contracts, "in that such contracts become valid and enforceable only where the Secretary of Labor . . . determines that the dollar value of the fringe benefits included is that prevailing in the locality for the classification in which the service employees are working." (Id. ¶ 52.)*fn5

Green filed his complaint on April 22, 2009, asserting claims against SCETTF and LIUNA for FCA violations involving presenting fraudulent claims (Count One), claims against twenty-nine contractors for FCA violations involving presenting fraudulent claims (Count Two), claims against SCETTF and LIUNA for making false statements (Count Three), claims against the twenty-nine contractors for making false statements (Count Four), and claims against all defendants for conspiracy (Count Five). With regard to each count, Green alleges that the activity giving rise to liability occurred "[d]uring the period beginning in or about 1978 and continuing until the date of th[e] Complaint." (Compl. ¶¶ 57, 61, 65, 71, 77.) Green claims "direct and independent knowledge" of the information on which his allegations are based due to his employment with LIUNA and SCETTF, and asserts that none of the allegations in the complaint is "based upon a public disclosure." (Id. ¶ 5.) In 2011, the United States filed a notice of its election to decline intervention in the case. Green later voluntarily dismissed his claims against twenty-four of the contractors.

SCETTF, LIUNA, Integrity Management Services, Crothall Healthcare, Kentucky Building Maintenance, and National Maintenance moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that the FCA's public disclosure bar eliminates subject matter jurisdiction over the action, and under Rule 12(b)(6), arguing that Green failed to plead fraud with particularity as required by Rule 9(b) and failed to plead factual allegations that any of the defendants presented a false claim for payment, made any false statements, or conspired to get the United States to pay a false claim. In opposition, Green argued that the public disclosure bar does not preclude jurisdiction because Green falls within the FCA's original source exception and that his pleadings are adequate. In support of his jurisdictional argument, Green submitted a declaration in which he states that "[a]s Director of the Fund, I became aware of the manner and means of its operation [sic] the fraudulent conduct of the Fund, LIUNA, and the contractors named as defendants in the case, which is the basis of the allegations in my Complaint." (Docket 70, Decl. of Gordon N. Green ("Green Decl.") ΒΆ 4.) He lists his employment responsibilities at SCETTF as "includ[ing] the development of literature and other documents for the Fund, and facilitating card-check elections for the organization of unions (as ...


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