United States of America et al v. Carmazzi, Inc et al CASE Unsealed After Doc [17] Per Order At [17]

COMPLAINT with Jury Demand (filed in camera and under seal) against ACE Reporting-US, LLC, Carmazzi, Inc, StratComm, Inc, filed by Susan Rose. Scheduling Report due by 1/28/2018.

Northern District of Iowa, iand-1:2017-cv-00121

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF IOWA EASTERN DIVISION UNITED STATES OF AMERICA ex rel.) SUSAN ROSE) Case No. 17cv121-LRR) Plaintiffs,)) COMPLAINT) v.) JURY TRIAL DEMANDED) CARMAZZI, INC., STRATCOMM, INC.,) FILED IN CAMERA AND UNDER SEAL and ACE REPORTING-US, LLC,) PURSUANT TO 31 U.S.C. § 3730(b)(2)) Defendants.) 1. Plaintiff-Relator Susan Rose, by and through her undersigned counsel, brings this False Claims Act ("FCA") Complaint on behalf of the United States of America against Defendants Carmazzi, Inc. ("Carmazzi"), StratComm, Inc. ("StratComm") and ACE Reporting-US, LLC ("ACE") (collectively, "Defendants"). Defendants fraudulently obtained dozens of government contracts awarded by the Social Security Administration ("SSA" or the "agency") for Verbatim Hearing Recording ("VHR") services by falsely and fraudulently misrepresenting to the SSA that Defendants would pay their employees specific wages and benefits as required by the terms of the relevant agency solicitations and by the Service Contract Act, 41 U.S.C. §§ 6701-6707 ("SCA"), but then knowingly not paying the specific wages and benefits to the detriment of their employees and the United States. Defendants further submitted false invoices to SSA to obtain payment for work performed under SSA contracts that misrepresented Defendants' compliance with the SCA. As a result of Defendants' scheme, the United States has been defrauded of millions of dollars. I. NATURE OF THE CASE 2. This is a complaint to recover damages and civil penalties on behalf of the United States 1 6 arising from false and fraudulent statements and claims made by Carmazzi, StratComm, and ACE. Defendants acted individually to defraud the United States in violation of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33. 3. The SSA administers several public welfare and benefit programs, including the process for the award of government-funded social-security disability ("SSD") and supplemental- security income ("SSI") benefits. Administrative hearings are central to the award of benefits under these programs. SSA conducts hundreds of thousands of hearings per year at 166 hearing sites across the United States, which SSA groups into 10 geographic regions. 4. Present at each hearing is a Verbatim Hearing Recorder—essentially a court reporter— who takes notes and digitally records the hearing, as well as provides other administrative assistance. In each hearing office, the SSA has contracted with, or is in the process of contracting with, a single private contractor to provide the VHR services required of that hearing office. 5. Among other things, SSA's contracts and Federal law require that contractors receiving these contract awards comply with (1) the SCA, which requires government contractors to pay prevailing wages and benefits for service employees, and (2) Executive Order 13658 (the "EO"), which sets a floor for minimum wages paid to workers on government contracts of $10.80 per hour. 6. Defendants are providers of VHR services that submitted bids to SSA in response to solicitations by SSA to fulfill its requirements for VHR services in various hearing offices across the country, including at hearing sites in Iowa, Nebraska, Minnesota, and Illinois. Defendants affirmatively represented—as part of their bids and the award process for each of the SSA contracts—that they would comply with the SCA and the EO. Defendants knowingly violated 2 6 these requirements. After award, Defendants continued their ruse, misrepresented their compliance with the SCA, and fraudulently obtained millions of dollars in payments from the SSA. 7. Rather than living up to their promises to pay their employees prevailing wages and benefits, Defendants actively solicited individual VHRs to complete the SSA work, camouflaging them as sham "independent contractors" or "freelancers" so that Defendants could fraudulently avoid paying required minimums of pay and benefits. The Defendants staffed the thousands of SSA hearings that the Defendants were now responsible for covering with individuals Defendants characterized as "contractors" or "freelancers" and did not pay these individuals the required wages and benefits. In all respects, these individuals were "service employees" under the SCA and not independent contractors or freelancers. Defendants paid these individuals as little as half the amount required to be paid by the SCA. Defendants pocketed the difference. And at no time did Defendants pay, as they were required to, 50 percent of the contracts' labor costs to the individuals who Defendants characterized as employees. 8. Defendants are the only winners in their scheme. The marketplace lost because any offeror that played by the rules, and built into its bid the true cost of complying with the SCA, could not compete on a level playing field for the SSA's needs—Defendants' misconduct distorted the competitive process. Defendants obtained VHR contracts that SSA would not have awarded if SSA knew the whole picture. 9. The individuals who actually performed the VHR services lost because they received, in some instances, only half of the prevailing wages and benefits that the SCA requires they receive. 10. And the United States Government lost because it got far less than it expected and 3 6 bargained for: the payment of prevailing wages and benefits as required by (1) the agency's solicitation documents and contracts; (2) the SCA statute; and (3) the applicable implementing regulations. 11. As is more fully set forth below, Defendants have knowingly submitted and caused to be submitted false and fraudulent documents to the agency. Specifically, Defendants misrepresented their compliance with the SCA in their bid documents and representations to the SSA. Defendants also submitted bills, invoices, and statements demanding payment of funds owed under contracts entered into pursuant to the SCA. Defendants knowingly submitted bills, invoices, and statements to the SSA knowing full well that they were not in compliance with the SCA, and failed to disclose to the SSA that they were paying wages far below those required by the contract. Defendants schemed to categorize individuals providing VHR services as contractors to avoid paying the necessary pay and benefits, and then concealed that they were doing so from the SSA. Consequently, Defendants are liable under the FCA for payments received under SCA-governed contracts. II. JURISDICTION AND VENUE 12. This Court has subject-matter jurisdiction pursuant to 28 U.S.C. §§ 1331 & 1345, and 31 U.S.C. § 3732. 13. This Court has personal jurisdiction over Defendants, pursuant to 31 U.S.C. § 3732(a), because Defendants transact business in this District. 14. Venue is proper in this district pursuant to 28 U.S.C. §§ 1391(b) & (c), and 31 U.S.C. § 3732, because some of the acts proscribed by 31 U.S.C. § 3729 and 41 U.S.C. § 6501 occurred within this District. 15. To the extent that any allegation in this Complaint has been publicly disclosed, Plaintiff- 4 6 Relator Susan Rose qualifies as the "original source" of that allegation under 31 U.S.C. § 3730(e). III. PARTIES 16. The Plaintiff-Relator is Susan Rose ("Plaintiff-Relator"), an adult citizen of the State of Minnesota. Plaintiff-Relator works as a Verbatim Hearing Recorder in Minnesota. 17. The Plaintiff the United States is the Government, acting through the Department of Justice and the SSA. 18. The Defendant Carmazzi, Inc., ("Carmazzi"), also known as Carmazzi Global Solutions, Inc., is a California corporation with its principal place of business at 1026 Florin Road, No. 384, Sacramento, California. Among other things, Carmazzi provides VHR services to the United States, including "specialized recruitment, interviewing, hiring, training, and retention of VHR personnel for long-term development and success for both our company and [its] clients." Carmazzi represents that it has six employees. 19. The Defendant StratComm, Inc. ("StratComm") is a Massachusetts corporation with its principal place of business at 24 Prime Park Way, Suite 103, Natick, Massachusetts. Among other things, Carmazzi provides VHR services to the United States and boasts that it has been "awarded contracts from SSA to manage this program across the entire U.S." StratComm represents that it has 16 employees. 20. The Defendant ACE Reporting-US, LLC ("ACE") is a Nebraska corporation with its principal place of business at 129 North 10th Street, Grand Manse, Suite 110, Lincoln, Nebraska. ACE is primarily engaged in the business of court reporting, including providing VHR services to the United States. ACE represents that it has six employees. 5 6 IV. BACKGROUND The False Claims Act 21. The FCA was enacted during the Civil War to address fraud in public contracting and to enhance the Federal government's ability to recover losses sustained as a result of fraud. 22. The FCA provides that any person who knowingly creates, uses, or causes a false claim to be submitted to the United States is liable for a civil penalty of between $10,957 and $21,916 per claim plus up to three times the amount of damages the Government sustained. 31 U.S.C. § 3729(a); 28 C.F.R. §§ 85.3-85.5. Under the FCA, "the terms 'knowing' and 'knowingly' mean that a person, . . . (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts with reckless disregard of the truth or falsity of the information." Id. at § (b). The FCA "require[s] no specific intent to defraud." Id. § 3729(b)(1)(B). 23. Through the FCA's so-called qui tam provision, Congress sought to encourage individuals who are aware of fraud to expose the misconduct to appropriate authorities by extending to them monetary rewards and providing protection from reprisal. The FCA allows any person having knowledge of a false or fraudulent claim against the Government to bring an action in Federal district court on behalf of the United States and to share in any recovery. The McNamara-O'Hara Service Contract Act of 1965 24. The SCA, codified at 41 U.S.C. §§ 6701-6707, requires government contractors holding service contracts to pay any person engaged in the performance of the contract minimum wages and benefits as determined by the Secretary of Labor. The SCA also contains posting, record- keeping, and safety requirements. See 41 U.S.C. § 6703. 25. Congress originally passed the SCA to ensure that workers performing Federal service 6 6 contracts were adequately compensated. H.R. Rep. No. 918, 89th Cong., 1st Sess. 2 (1965). Congress was particularly concerned about prospective contractors low-balling labor costs in the bidding process to obtain public contracts, which not only distorted the competitive process but also led to the Federal government effectively subsidizing the payment of subminimum wages. As explained in the House Report: "Since labor costs are the predominant factor in most service contracts, the odds on making a successful low bid for a contract are heavily stacked in favor of the contractor paying the lowest wage. Contractors who wish to maintain an enlightened wage policy may find it almost impossible to compete for government service contracts with those who pay wages to their employees at or below the subsistence level. When a government contract is awarded to a service contractor with low wage standards, the government is in effect subsidizing subminimum wages." Id. 26. Subject to a few exceptions, the SCA applies to any contract in excess of $2,500 awarded by the United States with the principal purpose of furnishing services through the use of "service employees." The SCA defines a "service employee" as a non-exempt individual and includes an individual without regard to any contractual relationship alleged to exist between the individual and a government contractor. 41 U.S.C. § 6701. 27. The SCA is enforced primarily by the Department of Lab