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United States ex rel. Scollick v. Narula

United States District Court, District of Columbia

October 14, 2016

UNITED STATES OF AMERICA, ex. rel. ANDREW SCOLLICK, Plaintiff-Relator,
v.
VIJAY NARULA, et al., Defendants.

          MEMORANDUM OPINION

          Roycc C. Lamberth United States District Judge

         I. INTRODUCTION

         This case was brought by plaintiff-relator Andrew Scollick against eighteen defendants for violations of the False Claims Act (“FCA”) in connection with a scheme to obtain certain set-aside government contracts through fraudulent means. The United States has declined to intervene in this matter. See Notice, ECF No. 6. The following defendants have moved to dismiss for failure to state a claim: Hudson Insurance Co., Hanover Insurance Co., Centennial Surety Associates, Inc., Michael Schendel, Ajay K. Madan, Vijay Narula, Optimal Solutions and Technologies, Inc. (“OST”), CB Construction Group, Inc. (“CB”), Dilip Parekh, Shobha N. Mehta, Melvin G. Goodweather, Citibuilders Solutions Group, and Guatam Chitnis. Defendants Amar Gogia, Centurion Solutions Group, LLC (“CSG”), and Neil Parekh have not moved to dismiss.[1] They have filed answers to plaintiff-relator's Complaint. See Defs. Gogia and CSG's Answer, ECF No. 63; Def. Parekh's Answer, ECF No. 103. Plaintiff-relator, with the consent of the U.S. government [110, 113], filed a notice of voluntary dismissal [112] with respect to defendants KCGI, Guatam Chitnis, and Anita Chitnis. Accordingly, no analysis of defendant Guatam Chitnis' motion to dismiss, ECF No. 108, is necessary because he has been voluntarily dismissed from this action.

         All of the foregoing motions to dismiss were granted by this Court's Order of September 30, 2016, ECF No. 122. The Court finds that plaintiff-relator has failed to state claims against defendants Hudson Insurance Co., Hanover Insurance Co., Centennial Surety Associates, Inc., Michael Schendel, CB Construction, Dilip Parekh, Shobha N. Mehta, Melvin G. Goodweather, and OST and has granted their motions to dismiss. Upon further review, the Court has determined that plaintiff-relator has stated claims against defendants Citibuilders, Ajay K. Madan, and Vijay Narula for certain FCA violations-presenting false claims in violation of 31 U.S.C. § 3729(a)(1)(A), making false statements in violation of 31 U.S.C. § 3729(a)(1)(B), and conspiracy in violation of 31 U.S.C. § 3729(a)(1)(C) (Counts I, II, IV). The Court will accordingly vacate its prior Order granting the defendants' motions to dismiss as to these three defendants and will grant in part and deny in part defendants Citibuilders, Madan, and Narula's motions to dismiss.

         In sum, Counts I, II, and IV remain pending against defendants Citibuilders, Madan, Narula, CSG, Neil Parekh, and Gogia.

         II. BACKGROUND

         The factual allegations in this case center around an alleged scheme to defraud the United States government by submitting bids to obtain government construction contracts. Plaintiff-relator claims that the defendants participated in this scheme by fraudulently claiming or obtaining service-disabled veteran-owned small business (“SDVOSB”) status, HUBZone status, or section 8(a) status for certain companies to bid on and obtain set-aside contracts, when in fact the bidders did not qualify for the statuses claimed. Plaintiff-relator alleges that defendants, as part of this scheme, falsely certified these statuses, made false claims regarding past performance, hid certain aspects of the management and control of the companies at issue, and hid or falsified certain information regarding the employees of the companies at issue.

         The central actors in this scheme are Neil Parekh, Ajay K. Madan, Vijay Narula, Centurion Solutions Group (“CSG”), and Citibuilders Solutions Group (“Citibuilders”). Parekh, Narula, and Madan allegedly engaged in conspiracy to defraud the government by bidding on SDVOSB construction contracts although none of them were service disabled veterans. Accordingly, Parekh, Narula, and Madan established CSG as a “front company” for the purpose of allowing them to bid on and obtain SDVOSB set-aside contracts. Compl. ¶ 43. To qualify for SDVOSB status, defendant Gogia-a service disabled veteran-was allegedly falsely identified as a 100% service disabled owner of CSG, although he did not actually exercise control or ownership over CSG. Id. at ¶ 50. Parekh, Narula, Madan, and Gogia also falsely identified that CSG operated out of a HUBZone when in fact it did not. Id. at ¶ 51. Plaintiff-relator alleges that CSG then submitted false claims and statements to the government. Id. at ¶¶ 53-85. Plaintiff-relator claims that the CSG bids contained falsified information regarding past performance, id. at ¶¶ 86-106, and false representations concerning CSG's employees, id. at ¶¶ 107-115. Finally, plaintiff-relator claims that CSG obtained millions of dollars in government contracts as a result of this fraudulent scheme, and lists the specific contracts allegedly fraudulently obtained. Id. at ¶ 116.

         With regard to Citibuilders, plaintiff-relator alleges that Parekh established Citibuilders to branch out his fraudulent SDVOSB contracting activity. Id. at ¶ 118. According to the Complaint, Parekh falsely certified Citibuilders as a service-disabled veteran-owned entity-utilizing defendant Goodweather's service-disabled veteran status even though Parekh was the de facto owner and controller of Citibuilders, and misrepresented Citibuilders' past performance and project personnel. Id. at ¶¶ 119-128. Plaintiff-relator claims that Citibuilders obtained millions of dollars in government contracts as a result of this fraudulent scheme, and lists the specific contracts allegedly fraudulently obtained. Id. at ¶ 129. Plaintiff-relator claims that the creation of Citibuilders by Parekh caused a rift between himself and Narula and Madan. Id. at ¶¶ 131-147. Plaintiff-relator claims that Narula is the alter ego of OST, that Neil Parekh, Dilip Parekh, CB, and Citibuilders are all alter egos of each other, that Narula, Neil Parekh, Madan, OST, and CB are joint-alter egos of CSG, and that Neil Parekh, Goodweather, and Citibuilders are joint alter egos. Id. at ¶¶ 29 - 32.

         Finally, Plaintiff-relator claims that similar fraud was committed in the name of a third company, KCGI. Id. at ¶¶ 166-174. Specifically it alleges that Narula, Parekh, Madan, Guatam Chitnis, and Anita Chitnis schemed to use KCGI to defraud the government by seeking Small Business Administration section 8(a) contracts and/or service disabled contracts. Id. at ¶ 166. On December 21, 2015 plaintiff-relator, with the consent of the U.S. government, filed a notice of voluntary dismissal with respect to KCGI, Guatam Chitnis, and Anita Chitnis.

         Because of the number of defendants and the various and sometimes disparate allegations against them, the Court will summarize the remaining factual allegations against the rest of the defendants separately.

         A. OST Defendants: Ajay Madan, Vijay Narula, Optimal Solutions and Technologies (“OST”)

         OST is a corporation located in Washington, D.C. Compl. ¶ 11. Vijay Narula is the president and CEO of OST. Id. at ¶ 15. Ajay K. Madan is the chief operating officer of OST and is a 49% owner of CSG. Id. at ¶ 20. Narula is alleged to be the alter ego of OST, and Narula, Madan, and OST are alleged to be (some of) the alter egos of CSG. Id. at ¶¶ 29, 31. Regarding OST, the Complaint alleges that CB's business operations were relocated to OST's office, id. at ¶ 42, that CSG's business operations occurred out of OST's headquarters, id. at ¶ 51, and that Narula, Madan, and Parekh prepared CSG bid proposals while working out of OST's office space, id. at ¶¶ 67, 84. It alleges that OST never qualified for SDVOSB or HUBZone status and was not a small business enterprise. Id. at ¶ 45-47. The Complaint further alleges that CSG's bid proposals “include[d] statements pertaining to work alleged to have been completed at defendant OST's corporate headquarters . . . [but] CSG never performed any such construction activity.” Id. at ¶ 102. Narula allegedly “would personally provide past performance survey responses [regarding the OST project] to the government.” Id.

         Factual allegations regarding defendants Narula and Madan are interspersed throughout the Complaint, which paints them as having a central role in the scheme. In sum, plaintiff-relator claims that Narula and Madan, along with Neil Parekh, were involved in the creation of CSG for the purpose of submitting fraudulent bids on certain government contracts, that Parekh, Narula, and/or Madan had control over and ownership of CSG, that they prepared the CSG bid proposals and decided the content, and that Gogia was subservient to them. Plaintiff-relator then describes Narula and Madan's reaction to the formation of Citibuilders-that it caused a rift among the three defendants. Id. at ¶ 131. He also discusses several communications between the defendants regarding the following: the transfer of funds, payroll and payment disputes, CSG's projects and profits, the separation of CB and CSG, the distribution of surplus CSG income between Parekh, Madan, and Narula, and the financial needs of CSG, OST, and CB. Id. at ¶¶ 133-47. Finally, plaintiff-relator alleges that Narula executed a corporate resolution for Hudson and Hanover acknowledging that OST, CSG, and CB shared common ownership, and the OST bonding agreement securing the CSG bonding included personal indemnity of Narula. Id. at 160-61.[2]

         B. Dilip Parekh and CB Construction

         CB Construction is a company owned by Neil and Dilip Parekh. Id. at ¶ 12. Dilip Parekh is the father of Neil Parekh and a 55% owner of CB Construction. Id. at ¶ 17. He is alleged to be an alter ego of Neil Parekh, CB Construction, and Citibuilders. Id. at ¶ 30. CB is alleged to be an alter ego of Neil Parekh, Dilip Parekh, and Citibuilders, as well as an alter ego of CSG. Id. at ¶¶ 30-31. CB does not qualify as a service-disabled veteran-owned business. Id. at ¶ 48. In 2010, CB's business operations were relocated to OST's corporate office. Id. at ¶ 42. Many of the factual allegations in the Complaint surrounding CB are related to its relationship with CSG. It alleges that Neil Parekh transferred money from the CSG checking account into the CB checking account which was controlled by Neil and Dilip Parekh. Id. at ¶¶ 70, 78. It alleges that the day to day management and oversight of CSG's SDVOSB construction contracts was performed in part by CB. Id. at ¶ 72. It alleges that CSG used credit cards issued to CB to conduct CSG business, that the primary cardholder on the CB account was Dilip Parekh, and that the CB cards used to conduct CSG business were in part issued in the name of Dilip Parekh. Id. at ¶ 79. It alleges that a credit card issued to Dilip Parekh was used to bill CSG costs, and a card in the name of CB was used to conduct CSG business. Id. at ¶ 80. Regarding CB only, the Complaint alleges that the CSG bids falsely claimed that CSG employed individuals who were actually employed by CB. Id. at ¶¶ 113-14. It also discusses apparent payments from CSG to CB. Id. at ¶¶ 133-35. Regarding Dilip Parekh only, it alleges that domination and control of Citibuilders was in the hands on Neil and Dilip Parekh, not defendant Goodweather, and that government contracting funds awarded to Citibuilders were funneled into accounts controlled by Neil and/or Dilip Parekh. Id. at ¶¶ 122, 127.

         C. Melvin G. Goodweather

         Defendant Goodweather is a service disabled veteran allegedly falsely identified as the sole owner and CEO of Citibuilders, although he was subservient to Neil Parekh. Id. at ¶ 19. He is alleged to be an alter ego of Neil Parekh and Citibuilders. Id. at ¶ 32. The Complaint claims that Parekh utilized Goodweather's service disabled veteran status to establish Citibuilders as a SDVOSB entity, but that Citibuilders was under the direct control of Parekh who was the de facto owner. Id. at ¶ 119, 122-126.

         D. Shobha N. Mehta, MD

         Dr. Mehta is the aunt of Neil Parekh. Id. at ¶ 21. The Complaint alleges that, as part of the scheme, the defendants falsified past performances of CSG. Specifically, it claims that defendants used a renovation project at Dr. Mehta's office as a credential of past performance that was necessary to bid and win contracts for medical centers. Id. at ¶¶ 96-97. Plaintiff-relator alleges that Dr. Mehta's office was never renovated and that “[t]he defendants manufactured the Mehta Project and cut and pasted reference to the Mehta Project in various solicitations and bid proposals with differing size and costs of that project to fit the particular contract requirements under bid.” Id. at ¶¶ 99-100. He claims that the defendants conspired with Dr. Mehta to allow them to identify her office as an example of CSG's past performance and that Dr. Mehta “would provide past performance survey information to the government falsely attesting to work CSG never performed.” Id. at ¶ 105.

         E. The Insurance Defendants: Centennial Surety Associates, Michael Schendel, Hudson Insurance Co., Hanover Insurance Co.

         Plaintiff-relator has also brought claims against several insurance related entities and one individual: Centennial Surety Associates, Michael Schendel, Hudson Insurance Co., and Hanover Insurance Co. (the “insurance defendants”). Under the Miller Act, contractors bidding for government construction contracts are required to post bid bonds, performance bonds, and payment bonds, and the bid bond company is required to ensure that the contractor will perform the work. Id. at ¶ 148. Centennial is an insurance broker, Schendel is the president of Centennial, and Hudson and Hanover are insurance companies that provided surety bonds to the defendants. Id. at ¶¶ 22-25.

         The bid proposals submitted here were dependent upon the issuance of surety bonds and performance bonds by Centennial, “as the agent and attorney-in-fact for Hudson Insurance Company and Hanover Insurance Company.” Id. at ¶ 151. Plaintiff-relator claims that Centennial and Schendel were the lawful agents of and attorneys-in-fact for Hanover and Hudson and that Schendel was responsible for causing Hudson and Hanover to issue bid and performance bonds to CSG and Citibuilders. Id. at ¶¶ 152-53. Plaintiff-relator claims that Schendel had a long-standing relationship with Neil Parekh and that Centennial knew that OST, CSG, and CB Construction shared a single office and that Parekh and Narula were in functional control of CSG. Id. at ¶¶ 154- 55.

         Plaintiff-relator alleges that the contracts at issue required Citibuilders and CSG to obtain bid bonds and performance bonds, without which the fraudulent activity could not be carried out. Id. at ¶ 156. He claims that Schendel and Centennial knew the details of the bid proposals submitted by OST, CSG, and CB. Id. at ¶ 158. He also claims that Hudson and Hanover “by and through its agent and attorneys-in-fact Centennial” understood that OST, CSG, and CB shared common ownership, requiring Narula, Parekh, and Gogia to execute corporate resolutions acknowledging this fact. Id. at ¶ 160. In addition, Schendel and Centennial allegedly “understood that Parekh, Narula, and Madan had ownership interests in CSG and deliberately disregarded this fact when issuing bonds in connections with the false certifications contained in the bidding proposals submitted to the government.” Id. at ¶ 163. Finally, the Complaint alleges that Hudson and Hanover knew that bonds were required for the contracts at issue and “[b]ut for Defendant Schendel, Centennial Surety Associates, Inc., acting as agents and attorney-in fact to Hudson Insurance Company and Hanover Insurance Company for the purpose of issuing bid bonds and performance bonds, the fraudulent bid submissions made by CSG and Citibuilders would not have been awarded.” Id. at ¶¶ 164-65.

         III. Legal Standard

         A. Motion to Dismiss

         To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A plaintiff must furnish “more than labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555. Instead, the complaint's “[f]actual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. (internal citations omitted). When considering a motion to dismiss under Rule 12(b)(6), “the court must assume ‘all the allegations in the complaint are true (even if doubtful in fact), ' and the court must give the plaintiff ‘the benefit of all reasonable inferences derived from the facts alleged.'” Aktieselskabet AF 21. Nov. 2001 v. Fame Jeans Inc., 525 F.3d 8, 17 (D.C. Cir. 2008) (internal citations omitted).

         Federal Rule of Civil Procedure 9(b) applies to FCA actions. United States v. Toyobo Co., Ltd., 811 F.Supp.2d 37, 44 (D.D.C. 2011) (citing United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551-52 (D.C. Cir. 2002)). An FCA plaintiff “must state with particularity the circumstances surrounding the defendants' allegedly false claims, as required by Rule 9(b) of the Federal Rules of Civil Procedure.” Totten, 286 F.3d at 544. The “time, place, and contents of the false representations” must be pleaded with specificity, as these are the “element[s] of fraud about which the rule is chiefly concerned.” Id. “[A]n FCA plaintiff must identify the ‘who, what, when, where, and how of the alleged fraud.'” United States v. Kellogg Brown & Root Servs., Inc., 800 F.Supp.2d 143, 153 (D.D.C. 2011). In sum, “[c]ombining Rules 8 and 9(b), we require that ‘the pleader . . . state the time, place and content of the false misrepresentations, the fact misrepresented and what was retained or given up as a consequence of the fraud, ” and that he “identify individuals allegedly involved in the fraud.” U.S. ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1256 (D.C. Cir. 2004)

         B. ...


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