United States ex rel. Haight v. RRSA (Commercial Div.), LLC

UNITED STATES OF AMERICA ex rel. TINA HAIGHT v. RRSA (COMMERCIAL DIVISION), LLC et al.

CIVIL ACTION NO. 3:16-CV-1975-S

United States District Court NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

October 20, 2020

MEMORANDUM OPINION AND ORDER

This Memorandum Opinion and Order addresses: (1) Defendant Ronald Scott Nichols' ("Nichols") Motion to Dismiss Qui Tam Complaint ("Nichols Motion to Dismiss") [ECF No. 36]; and (2) Defendants RRSA (Commercial Division), LLC; Roofing & Restoration Services of America, LLC; RRSA Commercial Roofing, Inc.; Haight Construction Management Services, Inc.; Turco Construction Inc.; Andrew's Roofing & Restoration, Inc.; Corey S. Sanchez; Jon R. Seymore; and Jennifer N. Seymore's (collectively, "RRSA Defendants") Rule 12(b)(6) Motion to Dismiss Complaint ("RRSA Motion to Dismiss") [ECF No. 37]. Nichols and the RRSA Defendants are referred to collectively as "Defendants."

Relator brings four claims against all Defendants pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq.:

• Count I: Violation of 31 U.S.C. § 3729(a)(1)(A) for knowingly submitting or causing to be submitted false or fraudulent claims for set-aside small business subcontracts to the United States Government;

• Count II: Violation of 31 U.S.C. § 3729(a)(1)(B) for knowingly using false records or statements to get false or fraudulent claims paid or approved by the United States Government;

• Count III: Violation of 31 U.S.C. § 3729(a)(1)(C) for conspiracy to violate § 3729(a)(1); and • Count IV: Violation of 31 U.S.C. § 3729(a)(1)(G) for knowingly avoiding or decreasing an obligation to pay or transmit money to the United States Government.

As a predicate for FCA liability, Relator also alleges that the RRSA Affiliated Defendants violated the Anti-Kickback Act of 1986, 41 U.S.C. § 8701 et seq. by paying a bribe. Compl. ¶ 241.¹

I. BACKGROUND

Relator Tina Haight claims to be an "original source" of the allegations, which she states are not based on publicly disclosed information. Id. ¶ 22. An "original source" is:

an individual who either (i) prior to public disclosure . . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (ii) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action . . . .

31 U.S.C.A. § 3730(e)(4)(B) (Westlaw current through Pub. L. 116-69). The parties do not dispute that Relator is an original source. Relator also states that she provided the Government with information prior to filing the Complaint in accordance with 31 U.S.C. § 3730(b)(2). Id. ¶ 22.

Relator brings this qui tam action against the following groups: (1) RRSA Affiliated Defendants;² (2) RRSA Affiliated Defendants senior management;³ (3) Prime ContractorDefendants;⁴ and (4) John Does #1-50.⁵ Relator alleges that the RRSA Affiliated Defendants violated the FCA by falsely certifying that RRSA (Commercial Division), LLC ("RRSA Commercial") is a small business, conspiring with the Prime Contractor Defendants to obtain small business subcontracts, and paying a kickback. Compl. ¶¶ 4, 237.

According to the Complaint, Roofing and Restoration Services of America, LLC ("RRSA Residential")⁶ is a large, national roofing company. Id. ¶ 109. In 2010 and 2011, Relator alleges that RRSA Residential generated nearly $80 million in annual sales in the private sector. Id. ¶¶ 108, 110. To expand business, Relator claims that the RRSA Affiliated Defendants devised a scheme to obtain subcontracting opportunities that are reserved for small businesses under the Small Business Act ("SBA"). Id. ¶ 111. According to Relator, RRSA Residential was not eligible to pursue these opportunities as its annual sales allegedly exceeded the income threshold to qualify as a small business under the relevant industry codes described in the North American Industry Classification System ("NAICS"). Id. ¶ 110.⁷ Relator asserts that as an alternative way to obtain small business subcontracts, the RRSA Affiliated Defendants (and specifically Corey S. Sanchez and John R. Seymore) decided to falsely certify that an affiliated entity, RRSA Commercial, wasan eligible small business. Id. ¶¶ 111, 119. Relator claims that RRSA Commercial is not a small business under SBA rules because it shares common ownership, common management, and identity of interests with the RRSA Affiliated Defendants (i.e., both are in the roofing and siding business), which Defendants do not dispute. Id. ¶¶ 127-41. Further, under the SBA "totality of the circumstances test," Relator alleges that these entities are affiliated because, among other things, they share the same place of business, email domain name, and phone number. Id. ¶¶ 142-50.

Relator claims that by utilizing an affiliated entity, the RRSA Affiliated Defendants determined that they would have a "distinct advantage" over competition from legitimate small businesses. Id. ¶ 112. For example, RRSA Commercial would be able to leverage the RRSA Affiliated Defendants' combined resources, materials, industry connections, and "bondability"—resources that most legitimate small businesses do not have. See id. ¶¶ 112, 114. "Bondability" was especially important because a contractor must be "bondable" to be considered for government contracts, meaning it qualifies for surety bonds on any given project. Id. ¶ 113. Relator maintains that the RRSA Affiliated Defendants have significant bondability—near $100 million—compared to actual small businesses with limited revenue streams and collateral sources and for whom it would be "essentially impossible" to secure bonding near $100 million. Id. ¶¶ 113-14.

According to Relator, on March 6, 2013, the RRSA Affiliated Defendants falsely certified on the System for Award Management ("SAM") database that RRSA Commercial was an eligible small business under the SBA. Id. ¶¶ 120, 123. The SAM database is the official registration system for businesses who work with the Federal Government. Id. ¶ 120. According to Relator, RRSA Commercial repeatedly certified that it was an eligible small business on annual updates. Id. ¶¶ 121, 124, 176. When questions were raised internally about the legality of thesemisrepresentations, Relator alleges that "Jon Seymore and Sanchez both responded that the Government was welcome to try and uncover the intentional misrepresentations and, if the Government ever uncovered the fraud, enough time would have elapsed that the RRSA Affiliated Defendants would no longer need the small business classification in order to secure government contracts." Id. ¶ 123.

After registering on SAM, the Prime Contractor Defendants awarded RRSA Commercial dozens of small business subcontracts, even though, Relator claims, the Prime Contractor Defendants knew that RRSA Commercial was in reality a large business. Id. ¶¶ 158-235. The Complaint also alleges that some of the Prime Contractor Defendants intentionally claimed credit for subcontracting with a "small business," while enjoying the benefits of working with RRSA Commercial, a large business with vast resources. Id. ¶¶ 162, 178. For this reason, Relator alleges that Clark made a "secret arrangement" with RRSA Commercial—through Nichols—pursuant to which RRSA Commercial was guaranteed to win bids for subcontracts if RRSA Commercial bid within Clark's designated range. Id. ¶¶ 167-69.

As a condition of receiving Government contracts, each Prime Contractor Defendant was required to prepare a small business subcontracting plan. See, e.g., id. ¶ 158. In a subcontracting plan, a prime contractor establishes subcontracting goals for small businesses, represents that a portion of the work will be awarded to small businesses, and certifies compliance. See, e.g., id. ¶¶ 158-59. When a prime contractor bids on a contract, the prime contractor submits the subcontracting plan to the Government, which becomes a material part of the contract if the prime contractor wins the bid. Id. ¶¶ 159-60. Because the Prime Contractor Defendants awarded subcontracts to RRSA Commercial, for which RRSA Commercial was not eligible, Relator alleges that their subcontracting plan certifications were false. Id. ¶¶ 2, 6-8.

To receive payment for the subcontracting work performed by RRSA Commercial, Relator asserts that the Prime Contractor Defendants submitted monthly invoices to the Government for services they claimed were performed by small businesses, resulting in "tens of millions of dollars in improper payments." See id. ¶¶ 8, 10-11, 252-53, 258, 267, 280. Relator also alleges that the Government paid contractually mandated bonuses to the Prime Contractor Defendants for subcontracting to purported small businesses. Id. ¶¶ 2, 6, 157, 162, 170, 181, 193, 207, 223, 235, 260, 265.

Relator also contends that the RRSA Affiliated Defendants paid an illegal kickback. Id. ¶¶ 236-39. At Marty Haight's home in late 2013, Haight allegedly gave Nichols $40,000-50,000 to bribe Clark project managers in exchange for subcontracts. Id. ¶¶ 237-39. As a result of these efforts, Relator maintains that RRSA Commercial grew by at least 400% from 2013 to 2016, with annual sales reaching $56 million. Id. ¶ 126.

II. LEGAL STANDARD

A. Rule 12(b)(6) Standard

To defeat a motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6), a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); Reliable Consultants, Inc. v. Earle, 517 F.3d 738, 742 (5th Cir. 2008). To meet this "facial plausibility" standard, a plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Plausibility does not require probability, but a plaintiff must establish "more than a sheer...