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

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

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.

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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 Labor and regulations promulgated by the Department of Labor. 29 C.F.R. Part 4. The SCA is also implemented by 48 C.F. R. Subpart 22.10 of the Federal Acquisition Regulations ("FAR"). 28. The SCA and its implementing regulations require that government contractors pay minimum wages and benefits based on "prevailing rates in the locality, or, where a collective- bargaining agreement covers the service employees, in accordance with the rates provided for in the agreement." 41 U.S.C. § 6703. The SCA also contains rules and requirements for sick and 7 6 vacation benefits. See 41 U.S.C. § 6703; 29 C.F.R. § 4.173. When there is no collective- bargaining agreement, the Secretary of Labor is authorized to determine the necessary wages and benefits through a Wage Determination, which contains minimum rates for various occupations in a particular geographic region. DOL wage determinations are typically set on an annual basis. The occupational code for determining VHR hourly rates within the relevant wage determinations is 01035. 29. For example, the DOL has separate wage determinations for Hennepin County, Minnesota (WD 15-4945 covering Minneapolis, Minnesota), Scott County, Iowa (WD 15-5011 covering Davenport, Iowa) and Woodbury County, Iowa (WD 15-5007 covering Sioux City, Iowa). Each of the abovementioned wage determinations were updated at the beginning of 2017 and in July 2017. While the Court Reporter rates in Scott County ($19.13) and Woodbury County ($19.61) remained the same throughout 2017, the Hennepin County wage determination increased from $20.21 to $23.20 on July 25, 2017. In addition to these minimum wages, contractors are required to provide an additional hourly rate to employees for health and welfare benefits. For all of the abovementioned wage determinations, the health and benefits rate increased from $4.27 to $4.41 on July 25, 2017. 30. Even in the absence of a wage determination, in no event, under the SCA and the EO, may government contractors pay any person engaged in the performance of a covered contract less than the Federal minimum wage. See 41 U.S.C. § 6704. 31. In addition to the SCA's statutory and regulatory provisions, the FAR contains a contract clause that is incorporated into SCA-covered contracts and that expressly provides that the SCA governs contractor performance. See 48 C.F.R. § 52.222-41 ("Service Contract Labor Standards"). 8 6 V. FACTS COMMON TO ALL FALSE CLAIMS ACT CLAIMS SSAs Procurement of VHR Contractors 32. Verbatim Hearing Recorders attend and record hearings conducted by SSA's Office of Disability Adjudication and Review ("ODAR"), which is responsible for reviewing denied SSD and SSI claims, among other things. VHRs create a digital audio recording of the hearing using Federal software and equipment to provide an index of events during the SSA hearing. While making an audio recording of each hearing, VHRs simultaneously type notes of the proceeding. 33. According to the Statement of Work issued by the SSA for the VHR contracts, qualifications for VHRs include the ability to communicate fluently in English (orally and written), a high school diploma or equivalent, and sufficient keyboard skills to type accurate notes during the proceeding. VHRs are typically referred to as "court reporters" by the agency and by Defendants alike. 34. There are 166 SSA ODAR offices in the United States and its territories. In recent years, SSA moved to a contracting model that involves a single award to a single provider to provide VHR services in each of the numerous hearing offices (and their associated satellite locations) across the ten ODAR regions of the United States. 35. In general, SSA used Requests for Quotations ("RFQs") to solicit bids from industry to fulfill SSA's requirements for VHR services in each particular hearing office. The RFQs were typically set-aside for designated small businesses only, meaning businesses with numerous employees or revenues above a threshold cannot compete for, and are ineligible to receive, these public contracts. 36. Following SSA's issuance of an RFQ, prospective contractors bid on VHR contracts for a hearing office within a particular region. Each SSA RFQ required contractor compliance with 9 6 the SCA, which applies to service contracts entered into by the United States. Contractors (and their subcontractors) were required to provide any person performing under these contracts fringe benefits and wages in accordance with determinations of the Secretary of Labor. These wages varied depending on the locality and industry. If no wage determination was made applicable to the contract, employees must be paid not less than Federal minimum wage as provided by section 6(a)(1) of the Fair Labor Standards Act and the EO. 37. Following bid submission, the SSA evaluated bids against various factors and selected a single contractor to provide the entirety of the SSA's VHR requirements for each particular SSA hearing office. The single contractor received an award and contract from SSA; SSA rejected the other bidders who were then unable to service SSA's VHR needs for that hearing office, unless they go to work for the single contractor awarded the contract. Defendants Misrepresented Compliance with the SCA but Paid Far Less than Promised 38. In the past three years, SSA has awarded VHR contracts to Defendants for a significant portion of SSA's nationwide VHR requirements. Collectively, Defendants have received the lion's share of all SSA contracts awarded for VHR services nationwide—contracts that have resulted in the payment to Defendants of millions of dollars. 39. However, Defendants knowingly misrepresented their compliance with the RFQ and the SCA in their bids, continue to knowingly misrepresent their compliance with the RFQ and the SCA during the performance period, and are knowingly paying wages and benefits less than required by the SCA. 40. Each RFQ quote template provided by the SSA required Defendants to affirmatively indicate that they "accept[ed] all terms of this RFQ," including the repeated references in the RFQ to compliance with the SCA, and to affirmatively indicate that each Defendant's SAM.gov 10 6 representations were "current, accurate, [and] complete": 41. Despite Defendants' representation that they "accept all terms of this RFQ" (i.e., that they would pay their employees' wages and benefits in accordance with the SCA), Defendants in practice pay far, far less. An example is illustrative. 42. Using the DOL Wage Determination for Hennepin County, Minnesota, contractors must pay VHR providers a minimum of $27.61 per hour for wages and benefits ($23.20 per hour in wages plus $4.41 per hour for benefits). An ordinary week requires a VHR to staff 27 scheduled ODAR hearings (19 of which are completed owing to cancellations) for a total of 32.25 hours "on the clock." 32.25 hours times $27.61 per hour for wages and benefits yields weekly gross pay of $890.42. 43. Defendants do not, however, pay at least this amount. Instead, Defendants in practice take a very different approach, and paid only a flat rate for each completed hearing. Defendants' advertised rates per hearing range from $30 per hearing (for ACE) to $26 per hearing (for StratComm) to $20 per hearing (for Carmazzi). Using the same figure of completed hearings— 19—the underpayment of pay and benefits is striking. At its advertised rates, ACE paid its VHRs $570 in weekly gross pay; StratComm paid its VHRs $494 in weekly gross pay; and Carmazzi paid its VHRs $380 in weekly gross pay. 44. Compared with the SCA-compliant compensation of $890.42 in this representative 11 6 example, ACE paid the individuals performing its SSA contracts only 64 percent of the SCA floor, StratComm paid the individuals performing its SSA contracts only 55 percent of the SCA floor, and Carmazzi paid the individuals performing its SSA contracts only 42 percent of the SCA floor. 45. So while Defendants represented in their bid documents—and once awarded, in their invoices—that they complied with the SCA, they did not, typically paying the individual VHRs who perform the work as little as half or less of the required wages and benefits under the SCA. 46. Defendants seek out individual VHRs to work on their government contracts via their websites, in flyers, and on job boards. These advertisements label the positions as "independent contractors" or "freelancers" in an attempt to avoid having to pay SCA wages, but in practice the VHRs hired to perform are "service employees" under the SCA and the contracts. Defendants' Misrepresentations Were Material to SSA 47. SCA compliance was material to the SSA's decisions to (1) award the VHR contracts to Defendants and (2) pay Defendants' invoices. 48. The cognizant SSA contracting officers relied on contractor bid materials to make several crucial determinations, including threshold determinations about responsiveness and responsibility. For example, the SSA RFQs expressly warned that offerors must submit accurate bids and that SSA would rely on bidders' submissions: 49. The SSA RFQs underscored this elsewhere, providing that the award will be made to "the responsible Contractor whose quote conforming to the solicitation will be most advantageous to the Government, price and other factors considered." The SSA RFQs specifically mandated that 12 6 offerors agree to comply with the SCA, incorporating FAR 52.222-41, and to identify in their representations to the Federal government if Defendants claimed an exemption from the SCA: 50. The RFQs also incorporated FAR 52.222-55, requiring the payment of minimum wages under EO 13658: 51. The SSA contracting officer, in response to questions from industry pre-bid, expressly indicated that SCA compliance was required, explaining multiple times that "[c]ontractors must follow all [SCA] regulations and contract requirements." But for Defendants' representations that they would comply with the SCA, SSA would not have—and could not have under the terms of the RFQs—awarded Defendants a VHR contract for any hearing office. SCA compliance was decisive to the Government's expectations under these circumstances. 52. Also material to the SSA was that Defendants completed contract performance using at least 50 percent of their own employees, as opposed to subcontractors. SSA made this abundantly clear by incorporating in the RFQs FAR 52.219-14, entitled "Limitations on Subcontracting." That clause expressly provides that, as relevant to Defendants' contracts, "[a]t least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern." 53. Defendants' ruse of using "independent contractors" or "freelancers" to perform the work meant that they did not comply with the Limitations on Subcontracting clause that was incorporated by SSA into their VHR contracts. 54. Given the centrality of SCA compliance to the award and the express limitation on 13 6 subcontracting in excess of 50 percent, SSA would not have paid any of the numerous invoices submitted by Defendants had SSA officials known that Defendants were paying the individuals performing the contracts as little as half or less of the compensation required under the SCA. VI. FACTS SPECIFIC TO EACH DEFENDANT'S SUBMISSION OF FALSE CLAIMS Carmazzi, Inc. 55. In fiscal year 2017 alone, the SSA awarded Carmazzi approximately 32 contracts for VHR services. See Exhibit 1 (schedule of Carmazzi VHR contracts). For example, in May 2017 the SSA awarded to Carmazzi the following VHR "indefinite-quantity" contracts, among many others: x Contract Award Number SS04-17-6R019 for Jacksonville, Florida. The awarded amount is $2,125,676.05. x Contract Award Number SS03-17-6R001 for Baltimore, Maryland. The awarded amount is $2,430,790.00. x Contract Award Number SS04-17-6R020 for Knoxville, Tennessee. The awarded amount is $1,441,305.55. 56. As of mid-August 2017, SSA has issued to Carmazzi task orders under these and other IDIQs for more than $1,480,000. These task orders relate to VHR services that span the United States. 57. By representative example only, in early 2017 the SSA issued an RFQ (Solicitation Number SSA-RFQ-R07-16-1017) for the VHR contract for the ODAR office in Omaha, Nebraska, which includes satellite offices in Grand Island, Lincoln, Norfolk, and North Platte, Nebraska and Sioux City, Iowa. 58. Shortly thereafter, Carmazzi submitted its bid, stating that it agreed to comply with the 14 6 SCA requirements therein. On SAM.gov, Carmazzi affirmatively represented to the Government that it was not entitled to an exemption from the SCA (FAR 52.555-52). 59. SSA awarded Carmazzi a VHR contract on March 6, 2017 (Contract Award Number SS07-17-6R001). The contract award was for $165,128. The contract became effective on July 5, 2017 (SS07-17-3R001) and extends through July 4, 2018. The SCA applies to Carmazzi's contract. 60. On June 13, 2017 the SSA issued a delivery/task order to Carmazzi for the Omaha VHR hearing office and its satellite offices, including Sioux City, Iowa (SS07-17-3R001). The delivery order totaled $54,972. The delivery order requires VHR services for 1,264 hearings and 124 cancellations. Effective July 5, the delivery order is set to be completed on December 31, 2017. 61. In representations to the Government, such as its representations in SAM.gov, Carmazzi represents that it has 6 employees, yet there is no conceivable way that that number of employees could cover the 1,264 hearings under this contract in addition to the myriad other VHR contracts that Carmazzi holds with SSA at sites across the country. See Exhibit 1 (schedule of Carmazzi VHR contracts). 62. The individuals Carmazzi uses to actually provide VHR services to complete its performance under these contracts are service employees, yet Carmazzi has gone to great lengths to misrepresent their status as "independent contractors." 63. In an attempt to circumvent the application of the SCA and in contradiction to its bid representations, Carmazzi hires individuals who perform this contract under the guise of "independent contractors." For example, on its website, Carmazzi solicited individuals to perform at the SSA office in Sioux City as follows: 15 6 64. Carmazzi's website noted that, at the Sioux City, Iowa satellite office, "[p]ayment for services is based upon the number of completed federal hearings. Hearings are referred for a full day or several days at a time with an average of 3-6 hearings per day. VHRs are paid $22 per completed hearing." This scheme, which Carmazzi set up deliberately and which Carmazzi used at other hearing offices and satellite locations, results in individuals receiving less than the SCA- mandated compensation that Carmazzi promised SSA that it would pay. 65. Since being awarded the Omaha Hearing Office contract described above, Carmazzi has submitted to the SSA invoices for the VHR services it performed. Carmazzi did not disclose to SSA that it was not complying with the SCA. The invoices have induced payments from the SSA. These invoices, like Carmazzi's response to the RFQ for this contract, are false and fraudulent. ACE Reporting-US LLC 16 6 66. During fiscal year 2017, the SSA has awarded ACE approximately 28 contracts for VHR across the United States. See Exhibit 2 (schedule of ACE VHR contracts). For example, in July and August 2017 the SSA awarded to ACE VHR "indefinite-quantity" contracts for the following locations, among many others: x Contract Award Number SS08-17-6R005 for Denver, Colorado. The contract award totals $1,312,625.00. x Contract Award Number SS05-17-6R018 for Chicago, Illinois. The contract award totals $1,116,650.00. x Contract Award Number SS09-17-6R013 for Fresno, California. The contract award totals $831,407.50. x Contract Award Number SS06-17-6R009 for Oklahoma City, Oklahoma. The contract award totals $1,835,350.00. 67. As of mid-August 2017, SSA has issued to ACE task orders under these and other IDIQs for more than $340,000—task orders that span the United States. 68. By representative example only, in early 2017 the SSA issued an RFQ (Solicitation Number SSA-RFQ-R02-17-1005) for the VHR contract for the ODAR office in San Juan, Puerto Rico. 69. ACE submitted a bid, stating that it agreed to comply with the SCA requirements therein. Furthermore, on SAM.gov ACE Reporting has indicated that it was not entitled to an exemption from the SCA (FAR 52.555-52). 70. On April 13, 2017 ACE received an award from SSA of contract Number SS02-17- 6R009. The contract award was for $1,077,525.00. The contract became effective August 15, 2017 and is set to be completed on August 14, 2018. The SCA applies to ACE's contract. 17 6 71. One month later—May 15, 2017—the SSA issued its first delivery/task order to ACE for the San Juan ODAR office and any remote or satellite offices (SS02-17-3R007). The delivery order requests VHR services for 1,296 hearings and 130 cancellations. Effective August 15, 2017, the delivery order is set to be completed on December 31, 2017. The delivery order is valued at $71,930. An additional delivery order (SS02-17-3R025) was issued on July 20, 2017 for 500 hearings and 50 cancellations—valued at $27,750. 72. In representations to the Government, such as its representations in SAM.gov, ACE represents that it has only 6 employees. There is no conceivable way that that number of employees could cover the considerable number of hearings slotted in Puerto Rico, in addition to ACE's thousands of additional ODAR hearings nationwide. See Exhibit 2 (schedule of ACE VHR contracts). 73. As an additional example, in early 2017 the SSA issued an RFQ (Solicitation Number SSA-RFQ-R05-17-1027) for the VHR contract for the ODAR office in Minneapolis, Minnesota. The SSA contemplated performance of 8,108 hearings from July 1, 2017 to June 30, 2018. 74. ACE submitted a bid, stating that it agreed to comply with the SCA requirements therein. Furthermore, on SAM.gov ACE Reporting has indicated that it was not entitled to an exemption from the SCA (FAR 52.555-52). 75. On August 17, 2017 ACE received an award from SSA of Contract Number SS05-17- 6R021. The contract award was for $1,439,175.00. The contract becomes effective December 17, 2017 and is set to be completed on December 17, 2018. The SCA applies to ACE's contract. 76. The next day—August 18, 2017—the SSA issued a delivery/task order to ACE for the Minneapolis ODAR office and any remote or satellite offices, including Duluth and Mankato, Minnesota (SS05-17-3R022). The delivery order requests VHR services for 85 hearings and 8 18 6 cancellations—however, note that the order is for only nine business days. Effective December 18, 2017, the delivery order is set to be completed on December 31, 2017, with additional delivery orders to come. 77. The individuals ACE uses to provide VHR services to complete its performance under these contracts are service employees, yet ACE has gone to great lengths to misrepresent their status as "independent contractors." For example, in its own literature soliciting labor for servicing these positions, ACE claims: 78. After the official award announcement, ACE advertised the need for VHRs and offered $30 per hearing. The ACE website advertises VHR openings nationwide, paying $20-25 per hearing: 79. This scheme, which ACE set up deliberately, results in individuals receiving less than the 19 6 SCA-mandated compensation that ACE promised SSA that it would pay. 80. Since being awarded the Minneapolis and San Juan contracts described above, ACE has submitted to the SSA invoices for the VHR services it performed. ACE did not disclose to SSA that it was not complying with the SCA. The invoices have induced payments from the SSA. These invoices, like ACE's response to the RFQ for this contract, are false and fraudulent. StratComm, Inc. 81. StratComm has been providing VHR services to the SSA for several years. On October 15, 2014, StratComm was awarded contract number SS01-15-60002 for VHR services—a contract providing for multiple years of VHR services. In fiscal year 2015, StratComm's transactions under this SSA contract totaled more than $979,000. Similarly, in fiscal year 2016 StratComm's transactions under the same SSA contract totaled more than $1,340,000. Thus far in 2017, StratComm's transactions under contract SS01-15-60002 have totaled more than $940,000. 82. In fiscal year 2017, StratComm has been awarded approximately 76 new SSA VHR contracts. As of mid-August 2017, these contracts have resulted in task orders totaling more than $4,800,000. See Exhibit 3 (schedule of StratComm VHR contracts). For example, in March and April 2017, the SSA awarded to StratComm VHR "indefinite-quantity" contracts for the following locations, among many others: x Contract Award Number SS04-17-6R002 for Kingsport, Tennessee. The contract award totals $1,088,881.50. x Contract Award Number SS05-17-6R004 for Madison, Wisconsin. The contract award totals $764,235.80. x Contract Award Number SS06-17-6R002 for Ft. Worth, Texas. The contract 20 6 award totals $1,091,593.25. x Contract Award Number SS02-17-6R005 for Long Island, New York. The contract award totals $866,901.20. 83. By representative example only, in early 2017 the SSA issued an RFQ (Solicitation Number SSA-RFQ-R05-16-1010) for the VHR contract for the Peoria, Illinois ODAR office. The contract included VHR services at the associated ODAR satellite offices in Galesburg, Decatur, Champaign, and Springfield, Illinois, as well as Davenport, Iowa. 84. StratComm submitted its bid, stating that it agreed to comply with the SCA requirements therein. On SAM.gov, StratComm has "elected not to complete" the representation indicating that it is exempt from the SCA (FAR 52.555-52). 85. On March 10, 2017 StratComm was awarded the VHR contract (Contract Award Number SS05-17-6R003) for the Peoria, Illinois ODAR office. The contract award was for $1,239,764.50. The contract (SS05-17-3R003) became effective July 10, 2017 and is effective through July 8, 2018. The SCA applies to StratComm's contract. 86. On June 12, 2017, the SSA issued a delivery / task order to Defendant StratComm for the Peoria, Illinois office and its remote offices, including Davenport, Iowa (SS05-17-3R003). The delivery order totaled $48,221. The delivery order requests VHR services for 1,198 hearings and 120 cancellations. Effective July 10, the delivery order is set to be completed on December 31, 2017. 87. In representations to the Government, such as its representations in SAM.gov, StratComm represents that it has 16 employees, yet there is no conceivable way that that number of employees could cover the 1,198 hearings under this one contract in addition to the myriad other VHR contracts that StratComm holds with SSA across the United States. See Exhibit 3 21 6 (schedule of StratComm VHR contracts). 88. The individuals StratComm uses to provide VHR services to complete its performance under these contracts are service employees, yet StratComm has gone to great lengths to misrepresent their status as "freelancers." Furthermore, on October 20, 2017 an individual working in StratComm's Human Resources Department represented to Plaintiff-Relator that any VHRs working for StratComm would be structured as independent contractors. 89. StratComm has represented to interested VHR applicants that the per-hearing pay rate is $26.00. 90. This scheme, which StratComm set up deliberately, results in individuals receiving less than the SCA-mandated compensation that StratComm promised SSA that it would pay. 91. Since being awarded the Peoria, Illinois Hearing Office contract described above, StratComm has submitted to the SSA invoices for the VHR services it performed. StratComm did not disclose to SSA that it was not complying with the SCA. The invoices have induced payments from the SSA. These invoices, like StratComm's response to the RFQ for this contract, are false and fraudulent. COUNT I FALSE CLAIMS ACT VIOLATION (31 U.S.C. § 3729(a)(1)(A)) (AGAINST ALL DEFENDANTS) 92. Plaintiff-Relator adopts and incorporates by reference all exhibits to this Complaint and preceding paragraphs as if fully set forth herein. 93. Defendants, by and through their officers, agents, and employees, knowingly submitted, caused to be submitted, or facilitated the submission of false and fraudulent claims to SSA over a period of several years. 22 6 94. Specifically, Defendants misrepresented in their bid documents their compliance with the SCA to induce SSA to make awards of lucrative VHR contracts. Further, once awarded, Defendants submitted bills, invoices, and statements to SSA demanding payment of funds owing under public contracts entered into subject to the SCA. 95. Defendants, as stated above, knowingly presented or caused to be presented false or fraudulent invoices to SSA for services performed pursuant to contracts governed by the SCA, and further received payment from the United States upon submitting those invoices. 96. By submitting invoices to SSA for services performed pursuant to SCA, Defendants fraudulently misrepresented to the United States that Defendants were in compliance with the SCA when they were not. 97. Such representations were material to the SSA's payment decisions, as the SSA contracting officers expressly included compliance with the SCA into the public contracts awarded to each Defendant. Had the SSA contracting officer known the truth, it would not have paid the invoices. Further, the SSA could not have legally awarded the public contracts originally to each respective Defendant had SSA's contracting officers known that Defendants would not comply with the SCA. 98. Defendants authorized their agents, officers, and employees to take the actions set forth above. 99. SSA made payments to Defendants subsequent to receiving invoices that were submitted pursuant to services performed under SCA. The United States reasonably relied upon Defendants' misrepresentations of compliance and/or accuracy in paying all sums due and owing under the contracts, and therefore, the United States is entitled to full recovery of the fraudulent amounts paid by its agency. At no time did Defendants disclose their non-compliance with the 23 6 SCA to the SSA. 100. As set forth in the preceding paragraphs, Defendants knowingly violated 31 U.S.C. § 3729(a)(1) and have damaged the United States by their actions in an amount to be determined at trial. COUNT II FALSE CLAIMS ACT VIOLATION (31 U.S.C. § 3729(a)(1)(B)) (ALL DEFENDANTS) 101. Plaintiff-Relator adopts and incorporates by reference all exhibits to this Complaint and preceding paragraphs as if fully set forth herein. 102. Defendants knowingly made or caused to be made false statements or false records, including Defendants' bid documents and invoices, which falsely suggested Defendants' compliance with the SCA. 103. Defendants, by and through their agents, officers, and employees, authorized its various agents, officers, and employees to take the actions set forth above. 104. SSA made payments to Defendants based on false or fraudulent statements, invoices, and/or records. The United States reasonably relied upon Defendants' misrepresentations of compliance and/or accuracy in paying all sums due and owing under the contracts, and therefore, the United States is entitled to full recovery of the fraudulent amounts paid by the agency. 105. Defendants' false statements or records were material to the payment decisions, as the SSA contracting officers expressly included compliance with the SCA into the public contracts awarded to each Defendant. Had the SSA contracting officer known the truth, it would not have paid the invoices. Further, the SSA could not have legally awarded the public contracts originally to each respective Defendant had SSA's contracting officers known that Defendants 24 6 would not comply with the SCA. 106. As set forth in the preceding paragraphs, Defendants knowingly violated 31 U.S.C. § 3729(a)(1) and have damaged the United States by their actions in an amount to be determined at trial. VII. JURY DEMAND 107. Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff-Relator demands a trial by jury on all questions of fact raised by this Complaint. VIII. PRAYER FOR RELIEF WHEREFORE, Plaintiff-Relator, on behalf of herself and the United States of America, respectfully requests, A. That this Court enter judgment under Counts I and II against Defendants in an amount equal to three times the amount of damages the United States has sustained because of Defendants' actions in violating 31 U.S.C. § 3729 et seq., plus statutory penalties; B. That the Plaintiff-Relator be awarded all costs incurred, including all reasonable attorney's fees and expenses; C. That in the event the United States intervenes at the time this action is unsealed and proceeds with this action, that Plaintiff-Relator be awarded an amount of at least 15 percent of the proceeds of this action or settlement of the claims in Counts I and II; D. That in the event the United States does not intervene as set forth above, the Plaintiff-Relator be awarded an amount of at least 25 percent of the proceeds of this action or settlement of the claims in Counts I and II; 25 6 E. That the United States and Plaintiff-Relator receive all relief, both at law and equity, to which they are entitled; and F. That the Court grant any other such relief that justice so requires. Date: October 27, 2017 DORSEY & WHITNEY LLP /s/ Kirk Schuler___________________ Kirk W. Schuler (AT0007732) DORSEY & WHITNEY LLP 801 Grand Ave., Suite 4100 Des Moines, Iowa 50309-2790 Tel: (515) 283-1000 Fax: (515) 283-1060 Alex P. Hontos (pro hac vice to be filed) hontos.alex@dorsey.com Lily T. Dobson (pro hac vice to be filed) dobson.lily@dorsey.com DORSEY & WHITNEY LLP Suite 1500, 50 South Sixth Street Minneapolis, MN 55402-1498 Tel: (612) 340-2600 Fax: (612) 340-2868 ATTORNEYS FOR PLAINTIFF-RELATOR 26 6