City of N.Y. v. Siemens Elec., LLC.

65 Misc.3d 333

107 N.Y.S.3d 827

CITY OF NEW YORK, State of New York, City of New York ex rel. Clifford Weiner, Plaintiffs,

v.SIEMENS ELECTRICAL, LLC. f/k/a Schelesinger-Siemens Electrical, LLC, Siemens Industry, Inc. f/k/a Siemens Energy & Automation, Inc., Schlesinger Electrical Contractors, Inc., Defendants.

104330/2012

Supreme Court, New York County, New York.

Decided on August 7, 2019

Counsel

City- Zachary Carter, Brian T. Horan, Corporation Counsel

Relator- Michael Smikun, Callagy Law, P.C.

Siemens defendants- Wendy Schwartz, New York, Binder & Schwartz LLP

Margaret A. Chan, J.

In this civil enforcement action, plaintiff, the City of New York (the City), now moves pursuant to State Finance Law § 190 (5)(b)(ii) for a determination that the proposed settlement between the City and defendants, Siemens Electrical, LLC, f/k/a Schlesinger-Siemens Electrical, LLC (Siemens Electrical); Siemens Industry, Inc., f/k/a Siemens Energy & Automation, Inc., and Schlesinger Electrical Contractors, Inc. (collectively, Siemens defendants), is fair, adequate, and reasonable. The relator, Clifford Weiner (Relator), opposes the proposed settlement. The Siemens defendants support the motion.

For reasons stated below, the City's motion is granted; and the Relator's requests for an evidentiary hearing, to supersede the City in this action, and for the court to calculate his qui tam award are denied. The Decision and Order is as follows:

FACTS

This action arises out of five contracts between the City of New York Department of Environmental Protection (DEP) and Siemens Electrical in connection with the upgrade and construction of water treatment facilities in Manhattan, the Bronx and Brooklyn. Siemens Electrical was formed on August 27, 2004, under the name Schlesinger-Siemens Electrical, LLC, by Siemens Energy and Automation, Inc. and Schlesinger Electrical Contracts, Inc., pursuant to the Delaware Limited Liability Company Act, Delaware Code § 18-101, et seq . Siemens Electrical was formed for the purpose of bidding upon, negotiating, and performing electrical projects for the DEP.

Between August 31, 2005, and January 19, 2007, Siemens Electrical won bids for one contract for upgrades to the 26th Ward Wastewater Treatment Plant in Canarsie, Brooklyn; two contracts for upgrades of the Wards Island Wastewater Treatment Plant on Wards Island in Manhattan; and two contracts for the construction of the new Croton Water Filtration Plant in the Bronx. The total value of the five contracts was $234,415,844.

In 2012, the Relator, a former vice president of Schlesinger who served on Siemens Electricals' board of managers in 2005, filed the complaint under seal, alleging that between 2005 and 2012 Siemens Electrical violated the New York False Claims Act (NYFCA) by misrepresenting its compliance with two distinct statutes that Siemens Electrical was required to comply under each of the DEP contracts. First, Relator alleged that Siemens Electrical submitted claims for payment overstating the work performed by Minority Business Enterprises (MBE) (NYSCEF No. 142, qui tam compl, ¶¶82-91; NYSCEF # 8, superseding compl, ¶¶77-94). Relator alleged that Siemens Electrical schemed to evade MBE subcontracting requirements ( Executive Law § 310 et seq . ) by fabricating a relationship with a contractor to fulfill the requirement that certain contracts be given to MBEs for all five contracts it had with the DEP, when in fact, the equipment was installed by a non-MBE firm.

And second, Relator alleged that Siemens Electrical fraudulently represented itself as a business with a licensed Master Electrician as an officer of the company, in violation of New York City Administrative Code § 27-3017(a)(1), in order to win its bid on the five contracts with the DEP and in Siemens Electrical's performance of the contracts (qui tam compl, ¶¶102-112; superseding compl, ¶¶29-76).

At that time, the New York County District Attorney's Office (DANY) was investigating Siemens Electrical for its noncompliance with the MBE and Master Electrician requirements. In January 2013, DANY and Siemens Electrical entered into a Deferred Prosecution Agreement (DPA), wherein Siemens Electrical admitted to defrauding the Department of Buildings (DOB) and DEP by falsely overstating the actual participation of MBEs and "knowingly violated the New York City Electrical Code as it relates to electrical contractors and Master Electricians" (NYSCEF # 140, DPA, ¶18). Siemens Electrical agreed to forfeit $10 million and take remedial measures, including the implementation of new policies and enhanced internal control (DPA, ¶10). Siemens Electrical has satisfied the terms of the DPA and the criminal action has been dismissed.

In 2015, the City and the Siemens defendants engaged in settlement discussions before a mediator. No agreement was reached. Soon thereafter, the City, with authorization from the State pursuant to State Finance Law § 190(2)(c)(iii), filed its superseding complaint substituting the original plaintiff in this action and converting the qui tam civil action into a civil enforcement action by the City ( State Finance Law § 190[2][c][i] ).

The superseding complaint alleges claims under State Finance Law §§ 189(1)(a), (b), and (c) and New York City's version of the False Claims Act ( NYC Admin. Code §§ 7-803[a][1], [2], and [ 3 ] ). The City's superseding complaint differs from the qui tam complaint, as relevant to the instant motion, to the extent that it elaborates on the factual allegations of the Master Electrician and MBE related claims against the Siemens defendants.

Soon thereafter, the Siemens defendants moved pursuant to CPLR 3212 for summary judgement on the basis of a recent decision of the United States Supreme Court, Universal Health Servs., Inc. v. United States ex rel. Escobar , ––– U.S. ––––, 136 S Ct. 1989, 195 L.Ed.2d 348 [2016] ) ( Escobar ). Another justice of this court, Hon. Joan A. Madden, denied the Siemens defendants' motion (NYSCEF # 145; City of New York v. Siemens Elec. LLC , Sup Ct, New York County, July 31, 2017, Madden, J., index no. 104330/12). As to the City's NYFCA claims based on the implied certification theory, the court held, first, that additional discovery was required to determine the materiality of the MBE claims, and second, that the documentary evidence relied upon by the Siemens defendants failed to establish that the Siemens defendants' false statements were not material as to their compliance with the master electrician requirements (id . at *5-8).

After resuming discovery, the parties again engaged in settlement discussions. This time, the City and the Siemens defendants reached an agreement and settled the claims for $1.5 million (NYSCEF # 138, proposed settlement ¶2). The settlement of the City's claims was negotiated and executed contemporaneously with the agreement to settle three separate actions by the Siemens defendants against the City (the commercial settlement)¹ (NYSCEF #139, commercial settlement agreement). The City and the Siemens defendants agreed that the proposed settlement amount is to be paid by a setoff against the commercial settlement amount (proposed settlement ¶2). The amount of the proposed settlement was reviewed and authorized by the Office of the New York City Comptroller.

DISCUSSION

This Discussion section addresses four issues under the New York False Claims Act: (1) Whether the proposed settlement should be approved; (2) whether Relator is entitled to discovery and an evidentiary hearing; (3) whether Relator may supersede the City in this action; and (4) the proportion of the potential award to which the Relator is entitled.

1. The Proposed Settlement

A. The False Claims Act

In 2007, New York State enacted the New York False Claims Act (NYFCA)

modeling it after the federal False Claims Act (FCA). The NYFCA (State Finance Law, Art. 13 §§ 187-194) provides that a relator may file a qui tam civil action on behalf of the person and the local government (id . § 190[2][a]). After a qui tam action is commenced, the government may serve a complaint against the defendant, substituting itself as the plaintiff and "convert the action in all respects from a qui tam civil action brought by a private person into a civil enforcement action by the local government" (id . § 190[2][c][iii]).

Relevant to the issue on whether the proposed settlement should be approved is State Finance Law § 190(5)(b)(ii), which states, in relevant part, that:

"The state or a local government may settle the action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after an opportunity to be heard, that the proposed settlement is fair, adequate, and reasonable with respect to all parties under all the circumstances." ( State Finance Law § 190[5][b][ii] ).

In the context of a claim under the NYFCA, New York State case law does not provide a standard to determine whether a "proposed settlement is fair, adequate, and reasonable with respect to all parties under all the circumstances" (id .). Since the NYFCA is modeled after the FCA, it is appropriate to look to federal jurisprudence when interpreting the NYFCA ( State ex rel. Seiden v. Utica First Ins. Co. , 96 A.D.3d 67, 71, 943 N.Y.S.2d 36 [1st Dept. 2012] ).

The federal False Claims Act (FCA) imposes liability on "any person who ‘knowingly presents ... a false or fraudulent claim for payment or approval,’ 31 U.S.C. § 3729(a)(1)(A), to a U.S. government official" ( Kellogg Brown & Root Servs., Inc. v. U.S., ex rel. Carter , ––– U.S. ––––, 135 S. Ct. 1970, 1973, 191 L.Ed.2d 899 [2015] ). "Under the qui tam provisions of the FCA, a private individual, referred to as a Relator, may file an action on behalf of the federal government against any individual or company who has knowingly presented a false claim to the government for payment" ( U.S. ex rel., Sequoia Orange Co. v. Baird-Neece Packing Corp. , 151 F.3d 1139, 1143 [9th Cir. 1998] ). A successful...