United States Ex Rel. Scollick v. Narula

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
UNITED STATES OF AMERICA, ex. rel. )
ANDREW SCOLLICK, )
)
Plaintiff-Relator, )
)
v. ) Case No: 14-cv-01339-RCL
)
VIJAY NARULA, et al., )
)
Defendants. )
)
MEMORANDUM OPINION
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
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The Court, finding that it is “patently obvious” that plaintiff-relator cannot prevail on Count III—reverse false
claims—against any of the defendants, will sua sponte dismiss Count III against defendants CSG, Neil Parekh, and
Gogia. See infra Note 3.
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[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
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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
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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 ¶
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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
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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
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OST, Narula, and Madan are also mentioned in the section of the Complaint regarding fraud in the name of KCGI.
Since plaintiff-relator has voluntarily dismissed his claims against KCGI, the Court will not address those
allegations.
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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.
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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
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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).
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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. Elements of FCA Claims
Plaintiff here has alleged four causes of action against all defendants: (1) submitting or
causing to be submitted false or fraudulent claims to the United States in violation of 31 U.S.C.
§ 3729(a)(1)(A) (presentment claims); (2) making or causing to be made or used false statements
or records material to false or fraudulent claims in violation of 31 U.S.C. § 3729(a)(1)(B) (false
statement claims); knowingly avoiding or decreasing obligations to the United States in violation
of 31 U.S.C. § 3729(a)(1)(G) (reverse false claims); and (4) conspiracy to violate the FCA in
violation of 31 U.S.C. § 3729(a)(1)(C).
The elements of presentment claims are as follows: “(1) the defendant submitted a claim
to the government, (2) the claim was false, and (3) the defendant knew the claim was false.”
Pencheng Si v. Laogai Research Found., 71 F. Supp. 3d 73, 91 (D.D.C. 2014) (internal quotation
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marks omitted). The elements of a false statement claim are nearly the same as those for a
presentment claim, with the exception that a false statement claim “requires evidence that the
defendant made a false statement to the government, as opposed to the submission of a false claim
for payment.” Id. at 87. Defendants must make these claims or statements “knowingly,” that is,
“by (1) having actual knowledge, (2) acting in deliberate ignorance, or (3) acting in reckless
disregard.” U.S. ex rel. K & R Ltd. P’ship v. Massachusetts Hous. Fin. Agency, 530 F.3d 980, 983
(D.C. Cir. 2008).
A reverse false claim occurs when a person “knowingly makes, uses, or causes to be made
or used, a false record or statement material to an obligation to pay or transmit money or property
to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an
obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G).
In contrast to the claims described above, “[a] reverse false claim is any fraudulent conduct that
‘results in no payment to the government when a payment is obligated.’” Pencheng Si, 71 F. Supp.
3d at 88. “Whereas a traditional false claim action involves a false or fraudulent statement made
to the government to support a claim for money from the government, a typical reverse false claim
action involves a defendant knowingly making a false statement in order to avoid having to pay
the government when payment is otherwise due.” Id.
Finally, to state a claim for conspiracy under the FCA, the plaintiff-relator must allege “(1)
that ‘an agreement existed to have false or fraudulent claims allowed or paid’ to the government,
(2) that each alleged member of the conspiracy ‘joined that agreement,’ and (3) that ‘one or more
conspirators knowingly committed one or more overt acts in furtherance of the object of the
conspiracy.’” Id. at 89 (quoting United States ex rel. Miller v. Bill Harbert Int’l Constr., Inc., 608
F.3d 871, 899 (D.C. Cir. 2010)). An action for conspiracy cannot exist absent underlying tortious
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conduct, and therefore “there can be no liability for conspiracy where there is no underlying
violation of the FCA.” Id.
IV. APPLICATION
Plaintiff-relator largely fails to state claims against the defendants who have filed motions
to dismiss. Plaintiff-relator fails to state a claim for reverse FCA violations (31 U.S.C.
§ 3729(a)(1)(G)) against any of the defendants. It also fails to state claims against defendants
Hudson, Hanover, Centennial, Schendel, CB Construction, Dilip Parekh, Mehta, Goodweather,
and OST for 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). However, plaintiff-relator has sufficiently stated claims against
defendants Citibuilders, Narula, and Madan for 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 first address
plaintiff-relator’s reliance on the alter ego doctrine, then will address the claims against the
defendants.
A. Alter Ego Doctrine
Plaintiff-relator’s Complaint paints a picture of an intricate and interconnected scheme to
defraud the government based on bids and proposals submitted by defendants CSG, Citibuilders,
and KCGI. In an apparent attempt to hold some of the defendants liable for the actions of CSG,
Citibuilders, and KCGI, plaintiff-relator alleges that many of the defendants are alter egos of each
other and are therefore jointly and severally liable for each other’s conduct. See Compl. ¶¶ 29–
32. However, Plaintiff-relator has failed to sufficiently allege facts showing that the alter ego
doctrine applies.
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In certain circumstances—“when the incentive value of limited liability is outweighed by
the competing value of basic fairness to parties dealing with the corporation”—courts may pierce
the veil of a corporation to hold shareholders individually liable for corporate actions. Labadie
Coal Co. v. Black, 672 F.2d 92, 96 (D.C. Cir. 1982). Courts must ask the following two questions
in determining whether to pierce the corporate veil: “(1) is there such unity of interest and
ownership that the separate personalities of the corporation and the individual no longer exist?;
and (2) if the acts are treated as those of the corporation alone, will an inequitable result follow?”
Id. Under the first prong, courts may consider the following factors: the nature of the corporate
ownership and control, i.e., whether the corporation is the alter ego of the individual who controls
it; failure to maintain corporate records; failure to maintain corporate formalities necessary for the
issuance or subscription to stock; commingling of funds or assets; diversion of corporate funds or
assets for personal use; and use of the same office by the corporation and by the individuals. Id.
at 97–99. With regard to the second prong, “[t]he essence of the fairness test is simply that an
individual businessman cannot hide from the normal consequences of carefree entrepreneuring by
doing so through a corporate shell.” Id. at 100. “The equities of reliance on corporate form are
generally analyzed in terms of the adequacy of a corporation’s capitalization.” I.A.M. Nat. Pension
Fund v. Wakefield Indus., Inc., No. CIV. A. 82-2187, 1991 WL 511071, at *6 (D.D.C. Oct. 18,
1991); see also Labadie, 672 F.2d at 99–100.
Here, plaintiff-relator has failed to sufficiently allege facts showing that the alter ego
doctrine applies. With regard to all the alleged alter ego relationships, plaintiff relator states that
the defendants “have such a unity of interest and ownership that the individuality of each entity
ceased and they functioned as a single entity.” Compl. ¶¶ 29–32. This is a legal conclusion
insufficient to state a claim for relief. See Twombly, 550 U.S. at 555. Plaintiff also claims that the
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“defendants participated in, controlled, and had an ownership interest in, and control of, various
partnerships and/or joint ventures to obtain and profit from government contracts” and that the
defendants took profits from these partnerships and joint ventures. Compl. ¶ 33. Plaintiff-relator
argues that “the specific facts alleged concerning the nature of the ownership and control of CSG,
CB, and Citibulders [sic] companies created by Defendants, and the commingling and
manipulation of assets and funds of one entity, and the diversion of funds and assets by and for the
benefit of other Defendants, as the result of a scheme to defraud the government, satisfy the
‘formalities’ and ‘fairness’ test.” Pl.’s Opp. To Mots. To Dismiss 22 n.8, ECF No. 111.
There are several issues with this assertion—plaintiff-relator fails to identify the specific
factual allegations in the Complaint that show commingling, manipulation, and diversion; the
allegations regarding the individuals’ relationships with the corporations (e.g., as owner, CEO, or
COO) do not appear to indicate a lack of formalities; and plaintiff-relator fails to explain how two
individual people can be alter egos of each other. The dispositive issue, however, is that plaintiff-
relator has failed to allege any facts showing that an inequitable result would follow if the corporate
veil remains unpierced. Plaintiff-relator has not alleged that any of the corporations named in the
Complaint are undercapitalized or that he would be unable to recover from them if successful in
this action. Claims against both CSG and Citibuilders remain pending in this action. Plaintiff-
relator, in its opposition to the defendants’ motions to dismiss, merely stated that he had satisfied
the “fairness” test with virtually no explanation. Therefore, because plaintiff-relator has failed to
allege facts showing that an inequitable result would follow if the Court did not pierce the corporate
veil and hold the defendants liable for the actions of each other, plaintiff has failed to sufficiently
allege that the defendants are alter egos of each other and are jointly and severally liable. To the
extent that plaintiff-relator bases any of the following claims against any defendants on their
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alleged status as an alter ego of a defendant who is alleged to have submitted a false claim or made
a false statement—e.g., CSG—those claims fail and plaintiff-relator has failed to state a cause of
action.
B. Defendants Hudson, Hanover, Centennial, Schendel, CB Construction, Dilip
Parekh, Mehta, and Goodweather
Plaintiff-relator has failed to state claims against defendants Hudson, Hanover,
Centennial, Schendel, CB Construction, Dilip Parekh, Mehta, or Goodweather for any of the
alleged FCA violations.
1. Presentment and False Statement Claims
Plaintiff-relator has failed to state a claim against the above listed defendants for presenting
false claims or making false statements. Under these provisions of the statute, a defendant may be
liable for knowingly presenting or causing to be presented a false claim for payment, or for
knowingly making or causing to be made a false record or statement material to the false claim.
31 U.S.C. § 3729(a)(1)(A)–(B). Plaintiff-relator has failed to sufficiently allege that the
defendants identified above either directly presented a false claim or made a false statement, or
that they caused a false claim to be presented or a false statement to be made.
a. Direct Presentment
None of the defendants at issue are alleged to have directly presented a false claim to the
government. Although the Complaint alleges the conclusory statement that “defendants conspired
with one another to knowingly present, and/or cause to be presented false claims to the government
related to past performance, employee knowledge and skills, experience, education, hours worked,
work completed, business relationships, false certification as to service-disabled veteran status,
false certification as to small business status, false certification as to HUBZone status, and
ownership and control of Narula and Parekh,” Compl. ¶ 34, the only actually presentment was
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committed by CSG, Citibuilders, or KCGI in connection with the alleged scheme to bid on and
obtain government contracts when they did not have the requisite status to bid on or obtain such
contracts. As the Court has held that plaintiff-relator has failed to sufficiently allege application
of the alter ego doctrine, the defendants are not liable under the FCA for the presentments of CSG,
Citibuilders, or KCGI.
b. Direct False Statements
Regarding direct false statements, the Court similarly finds that plaintiff has failed to show
that the defendants directly made false statements to the government. Again, the false statements
alleged to have been made were made by CSG, Citibuilders, or KCGI in the process of submitting
bids. None of the other defendants listed above—with the exception noted below—are alleged to
have made false statements or records material to the false or fraudulent claims to the government.
In one instance, plaintiff-relator does allege that an individual defendant did make a false
statement to the government apparently not on behalf of CSG, Citibuilders, or KCGI. He alleges
that “Dr. Mehta would provide past performance survey information to the government falsely
attesting to work CSG never performed.” Compl. ¶ 105. This allegation, however, fails to meet
the heightened pleading standard under Rule 9(b). It includes who made the statement and to
whom the statement was made, but it does not identify with specificity when these statements were
made, how they were made, or what facts were misrepresented. See Martin-Baker Aircraft Co.,
389 F.3d at 1256 (finding that plaintiff failed to satisfy Rule 9(b)’s particularity requirement
because the complaint failed to allege a start date of the fraudulent activity and it was unclear what
facts were misrepresented). Although plaintiff-relator, earlier in the Complaint, lists the allegedly
false square footage and costs of the Mehta Project, all of these statements were made in either the
“CSG technical submission,” “the CSG response,” or “the CSG proposal.” Compl. ¶ 100. Thus,
16
these statements were made by CSG, not Dr. Mehta, and it remains unclear what specific false
statements Dr. Mehta herself made.
c. Indirect Presentment and False Statements
Because plaintiff-relator cannot claim that the defendants directly presented false claims
or made false statements or records, he rests his claims on the argument that the defendants caused
a false claim to be presented or caused a false statement to be made. See Pl.’s Opp. 10–13. The
FCA provides for liability in those circumstances. To determine whether a defendant who did not
actually submit a claim or make a false statement “has ‘caused’ the submission of a false claim or
false statement, a court must look at the degree to which that party was involved in the scheme
that results in the actual submission.” United States ex rel. Tran v. Computer Scis. Corp., 53 F.
Supp. 3d 104, 127 (D.D.C. 2014). Courts should therefore consider whether the plaintiff has
alleged that the defendant’s conduct was “at least a substantial factor in causing, if not the but-for
cause of, submission of false claims.” Toyobo, 811 F. Supp. 2d at 48 (finding that the causation
requirement was satisfied by allegations that the non-submitting defendant, a fiber manufacturer,
marketed the fiber to vest manufacturers for use and “induced with the prospect of refunds, rebates,
and reimbursements . . . manufacturers and other companies in the [fiber] supply chain to continue
producing [fiber-related] products—and selling them to the government—when questions arose”
regarding the fiber’s suitability). Courts have credited indirect presentment and false statement
claims in the following circumstances: “when the non-submitting party takes advantage of an
unwitting intermediary, thereby causing that party to submit a false claim;” when “the non-
submitter was the driving force behind an allegedly fraudulent scheme;” when “they had agreed
to take certain critical actions in furtherance of the fraud;” and when the “non-submitter continued
to do business with an entity upon becoming aware that that entity was submitting false claims.”
Tran, 53 F. Supp. 3d at 126–27. Because the FCA “penalizes a person for his own acts, not for
17
the acts of someone else,” United States v. Bornstein, 423 U.S. 303, 312 (1976), failure to act is
insufficient. “Courts generally require that the defendant affirmatively act in order to impose
liability under the FCA, particularly when a plaintiff alleges that the defendant ‘caused’ the
submission of false claims.” United States ex rel. Landis v. Tailwind Sports Corp., 51 F. Supp. 3d
9, 50 (D.D.C. 2014).
The Court finds that plaintiff-relator has failed to sufficiently allege presentment or false
statements claims based on a theory of causation against defendants Mehta, Dilip Parekh, CB
Construction, and Goodweather, or against the insurance defendants—Hudson, Hanover,
Centennial, and Schendel.
i. Defendants Mehta, Dilip Parekh, CB Construction, and
Goodweather
Dr. Mehta, Dilip Parekh, and CB Construction all had relatively minor roles in the alleged
scheme. Dr. Mehta is alleged to have allowed CSG to use false information regarding the
renovation of her office in solicitations and bid proposals and to have provided false information
to the government regarding this project. Dilip Parekh is alleged to have “provided resources from
his construction company, CB Construction, and allowed his credit card and company bank
account to be used to funnel CSG proceeds into his company’s account.” Pl.’s Opp. 23. CB
Construction is similarly alleged to have allowed CSG to use its credit card. In addition, the
Complaint alleges that money was transferred from CSG to CB, and that the management and
oversight of CSG’s SDVOSB construction contracts was performed in part by CB. Finally,
defendant Goodweather is alleged to be the service disabled veteran who was falsely identified as
the owner of Citibuilders, when in fact he never controlled Citibuilders, which was under the
control of defendant Parekh.
18
This conduct, although allegedly part of the larger scheme, does not rise to being a
substantial factor in the submission of false claims, and is certainly not the “but for” cause of the
submission of the claims. The other defendants did not need Dr. Mehta, Dilip Parekh, or CB
Construction to take the actions they are alleged to have taken in order to accomplish their alleged
goal of submitting false claims and making false statements to the government. The facts alleged
against defendant Goodweather also do not support the inference that he caused the submission of
claims or the making of false statements. For example, nothing in the Complaint indicates that
defendant Goodweather asked or directed defendant Parekh to make the claims or statements, that
he prepared such claims or statements, or that he otherwise had any role in the submission of claims
or statements. Defendant Goodweather is not alleged to have affirmatively acted in any way that
would cause the submission of the false claims or statements. See Landis v. Tailwind Sports Corp.,
51 F. Supp. 3d at 50. The Court finds that plaintiff-relator has failed to allege that the roles played
by these defendants were a substantial factor in causing the submission of false claims or
statements—at most they played periphery roles in the alleged scheme. See Toyobo, 811 F. Supp.
2d at 48. Therefore, plaintiff-relator has failed to state a claim for relief under 31 U.S.C.
§ 3729(a)(1)(A) (Count I) or 31 U.S.C. § 3729(a)(1)(B) (Count II) against defendants Mehta, Dilip
Parekh, CB Construction, and Goodweather.
ii. Insurance Defendants
The Complaint also does not show that the insurance defendants caused any of the other
defendants to submit false claims or make false statements. While it is true that bonding is a
necessary step in bidding for government construction contracts, this does not mean that the
issuance of bonds caused the submission of false claims or statements. None of the insurance
defendants played roles similar to those identified above where courts have found that plaintiffs
have pled indirect presentment or false statement claims. First, they did not take advantage of
19
unwitting submitters (CSG, Citibuilders, and KCGI). Cf. United States v. Honeywell Int’l Inc.,
798 F. Supp. 2d 12, 24 (D.D.C. 2011) (“[A] subcontractor violates § 3729(a)(2) if the subcontractor
submits a false statement to the prime contractor intending for the statement to be used by the
prime contractor to get the government to pay its claim.”). Second, the Complaint clearly alleges
that CSG, Citibuilders, and KCGI, as well as the Parekh, Narula, and Madan, were the driving
forces behind the scheme—the insurance defendants did not envision the scheme or push the other
defendants to enact it. Cf. Toyobo, 811 F. Supp. 2d at 48 (finding that plaintiff alleged cause of
action against non-submitter who induced submitters to continue manufacturing and selling to the
government the non-submitter’s product).
Third, although bonding was a necessary step in submitting the bids at issue, no facts are
alleged that would allow the inference that the insurance defendants agreed to bonding in
furtherance of the fraud alleged. The Complaint merely alleges that Centennial knew that OST,
CSG, and CB shared an office, that Parekh and Narula were in functional control of CSG, that
Parekh, Narula, and Madan had ownership interests in CSG and disregarded this fact, that Schendel
had a relationship with Parekh, and that Schendel and Centennial knew of the details of each bid
proposal submitted by OST, CSG, and CB. It also alleges that Hudson and Hanover knew that
OST, CSG, and CB shared common ownership and therefore required Narula, Parekh, and Gogia
to execute corporate resolutions acknowledging this fact, and that they knew that surety bid bonds
were required. None of these allegation show that the insurance defendants were acting in
furtherance of fraud; the Complaint does not even allege that the insurance defendants had an
interest in the scheme’s success. Cf. U.S. ex rel. Sikkenga v. Regence Bluecross Blueshield of
Utah, 472 F.3d 702, 715 (10th Cir. 2006) (finding that plaintiff adequately alleged a “causing to
20
be presented claim” by alleging that the non-submitter “‘agree[d] to circumvent’ contractual and
statutory requirements, and ‘assur[ed]’” a laboratory that it would continue to accept false claims).
Finally, there is no allegation that the insurance defendants continued to do business with
the other defendants upon becoming aware that the other defendants were submitting false claims.
The allegation that the insurance defendants knew the contents of the bid proposals does not mean
the insurance defendants knew the content included false claims. Cf. United States v. President &
Fellows of Harvard Coll., 323 F. Supp. 2d 151, 187 (D. Mass. 2004) (“Where a defendant has an
ongoing business relationship with a repeated false claimant, and the defendant knows of the false
claims, yet does not cease doing business with the claimant or disclose the false claims to the
United States, the defendant’s ostrich-like behavior itself becomes a course of conduct that allowed
fraudulent claims to be presented to the government.” (internal quotation marks and citations
omitted)). Therefore, plaintiff-relator has failed to state a claim for relief under 31 U.S.C. §
3729(a)(1)(A) (Count I) or 31 U.S.C. § 3729(a)(1)(B) (Count II) against defendants Hudson,
Hanover, Centennial, and Schendel.
2. Reverse False Claims
Plaintiff-relator has also failed to state a claim for reverse false claims. Reverse false
claims occur when “the defendant’s alleged deception ‘results in no payment to the government
when a payment is obligated.’” Hoyte v. Am. Nat. Red Cross, 518 F.3d 61, 67 (D.C. Cir. 2008).
In contrast to typical false claims actions, “a typical reverse false claim action involves a defendant
knowingly making a false statement in order to avoid having to pay the government when payment
is otherwise due.” Pencheng Si, 71 F. Supp. 3d at 88. A reverse false claim may not rest, however,
on the argument “that an obligation arose out of Defendants’ concealment of their allegedly
fraudulent activity,” because “by this logic, just about any traditional false statement or
presentment action would give rise to a reverse false claim action; after all, presumably any false
21
statement actionable under sections 3729(a)(1)(A) or 3729(a)(1)(B) could theoretically trigger an
obligation to repay the fraudulently obtained money.” Id. at 97.
Plaintiff-relator alleges that reverse FCA violations occurred because “(a) Defendants
Centennial Surety Associates, Inc., Michael Schendel, Hudson Insurance Co. and Hanover
Insurance Co. [i.e., the insurance defendants] have knowingly concealed, and knowingly and
improperly avoided or decreased their obligation to pay money to the government as a result of
their roles facilitating the fraudulent scheme and by knowingly assisting other Defendants in
defrauding the government; and (b) when all Defendants knowingly retained government funds
that [they] knew were obtained as a result of the contracting fraud.” Pl.’s Opp. 38–39. He argues
that the insurance defendants had a duty to review the bids and ensure that CSG, CB, and
Citibuilders would perform the contract, but that they knew that the bid proposals were fraudulent
and issued bonds anyway, when they had a duty to deny issuance of the bonds. Id. at 39. He
argues that the insurance defendants “also knowingly and improperly avoided or decreased their
obligations to pay the government the full amount of the bonds for each government contract that
was fraudulently bid or performed by the other Defendants.” Id. at 40. Regarding the rest of the
defendants, plaintiff-relator argues that all those “who received government funds or benefits
under the contracts at issue have committed ‘reverse’ FCA violations by retaining government
funds that were fraudulently obtained and are, therefore, overpayments,” and they have an
obligation to repay funds or benefits obtained as a result of the fraud. Id.
Plaintiff-relator’s arguments with regard to the insurance defendants fail to state a claim
for reverse FCA violations. The allegation that the insurance defendants should have denied
issuance of the surety bonds does not equate to an allegation that the defendants actually owed any
payment to the government in connection with the bonds. Moreover, the Complaint contains no
22
allegations that the insurance defendants knew the bids were fraudulent—it merely states that they
knew the details of the bid proposals and that Parekh, Narula, and Madan had ownership interests
in CSG. Furthermore, although the Complaint states that under the Miller Act, bid bond companies
are required to ensure that the contractor will undertake the contract, that the contractor will
complete the project in accordance with the specifications, and will ensure that those who furnish
labor and materials will be paid, there are no allegations that any of those actions were not taken
here. The Complaint does not state with any particularity what obligations were owed by which
insurance defendants, and how such obligations were avoided or decreased. Cf. Pencheng Si, 71
F. Supp. 3d at 96 (“In addition to failing to provide any details about the source of the alleged
obligation, Relator also fails to specify the parameters of that obligation, such as what triggers the
duty to repay and what sort of repayment it requires.”). There is simply no allegation in the
Complaint that the insurance defendants had an obligation to pay the government the full amount
of the bonds. See id. at 97–98 (“Relator cannot now claim that there is a general obligation to
repay all instances of misuse of grant funds when the amended complaint does not state as much.”).
Plaintiff-relator also fails to state a claim for reverse false claims with respect to the rest of
the defendants. His argument that those who benefitted from the fraudulently obtained contracts
had an obligation to repay those funds is the same as that which was rejected in Pencheng Si, where
the relator “attempt[ed] to argue that an obligation arose out of Defendants’ concealment of their
allegedly fraudulent activity.” Id. at 97. Like the court in Pencheng Si, this Court finds that the
fraudulent actions alleged here do not trigger an obligation to repay the fraudulently obtained
money. See id. Therefore, plaintiff-relator has failed to state a claim for reverse false claims under
31 U.S.C. § 3279(a)(1)(G) (Count III).3
3
Based on the Court’s reasoning above, it also finds that it is “patently obvious” that plaintiff-relator cannot prevail
on its reverse false claims count against any of the defendants, including those who have not moved to dismiss. See
23
3. Conspiracy
Plaintiff has failed to state a claim for conspiracy. There can be no conspiracy when there
is no underlying FCA violation. Pencheng Si, 71 F. Supp. 3d at 89. As the Court has found that
plaintiff-relator failed to state claims under the FCA for the presentment of false claims, for making
false statements, and for reverse false claims, these allegations cannot qualify as the underlying
tortious act necessary for a conspiracy to exist. Therefore, plaintiff-relator has failed to state a
claim for conspiracy under 31 U.S.C. § 3279(a)(1)(C) (Count IV).
C. Defendant Citibuilders
Defendant Citibuilders is one of three companies (along with CSG and KCGI) at the center
of the alleged scheme to defraud the government through bidding and fraudulently obtaining
SDOVSB government contracts. According to the Complaint, defendant Neil Parekh created
Citibuilders and used defendant Goodweather’s service-disabled veteran status to establish
Citibuilders as an SDVOSB entity, and then “utilized Citibuilders as the vehicle to obtain
SDVOSB set-aside contracts by falsely certifying Citibuilders as a service-disabled veteran-owned
entity, and by materially misrepresenting Citibuilders’ past performance and project personnel that
were necessary to qualify for the contract award.” Compl. ¶ 120.
Plaintiff-relator has sufficiently stated claims for the presentment of false claims, making
false statements, and conspiracy in violation of the FCA, but has failed to state a claim for reverse
false claims.
1. Presentment and False Statements
The court first finds that plaintiff-relator has sufficiently stated a claim against defendant
Citibuilders for the presentment of false claims and the making of false statements. Citibuilders
Fields v. Bellamy, No. 93-52741994 WL 549470, at *1 (D.C. Cir. Sept. 14, 1994). Therefore, the Court will sua
sponte dismiss Count III against defendants CSG, Neil Parekh, and Gogia.
24
argues that the allegations against it are conclusory and devoid of the necessary specificity under
Rule 9(b). Def. Citibuilders’ Mot. Dismiss 4–5, ECF No. 105. It argues that the Complaint “fails
to allege the time place, and content of each false certification or to whom the false certification
was made,” and that it “fails to allege the time, place, content, and recipient of the
misrepresentation. Id. Construing the facts in favor of the plaintiff-relator, however, the Court
finds that the Complaint does in fact allege the time, place, content, and recipients of the false
certifications and misrepresentations. The Complaint, after explaining the formation of
Citibuilders and the alleged use of defendant Goodweather’s service disabled veteran status,
alleges that the Citibuilders proposals are “cookie cutter” versions of the CSG proposals, just
issued in the name of Citibuilders instead of CSG. Compl. ¶ 120; see also Pl.’s Opp. 9 (“Parekh
prepared ‘cookie cutter’ versions of the exact same proposals that were being prepared in the name
of CSG.”). A reasonable inference construed in favor of plaintiff-relator is that the content of the
Citibuilders proposals was identical to the content of the CSG proposals, which are described
earlier in the Complaint. See, e.g., Compl. ¶ 68 (describing false statements made in the CSG
proposals); ¶¶ 86–106 (describing the falsification of CSG’s past performance); ¶¶ 107–115
(describing false representations concerning CSG’s employees).
The Complaint then lists the false statements made by Parekh in connection with the
submission of Citibuilders’ solicitations. Compl. ¶ 121. Finally, the Complaint lists nine of the
specific contracts allegedly fraudulently awarded to Citibuilders between 2010 and 2014. Id. at
¶ 129. It includes the department or agency to whom the contract was submitted, a description of
the contract, the date the contract was awarded, and the program source number, the solicitation
number, or the contract number. Id. This information is enough to satisfy the particular pleading
requirements of Rule 9(b)—plaintiff-relator may not have “allege[d] every fact pertaining to every
25
instance of fraud,” but, on the basis of the facts alleged, Citibuilders is “able to ‘defend against the
charge and not just deny that they have done anything wrong.’” Martin-Baker Aircraft Co., 389
F.3d at 1259. Therefore plaintiff-relator has sufficiently stated a plausible claim for relief against
Citibuilders for the presentment of false claims and for making false statements in violation of 31
U.S.C. § 3729(a)(1)(A) (Count I) and 31 U.S.C. § 3729(a)(1)(B) (Count II).
2. Reverse False Claims
Plaintiff-relator has not, however, stated a plausible claim for relief for reverse false claims.
Plaintiff-relator rests its reverse false claims argument on the assertion that the defendants retained
government funds that they knew were obtained as a result of fraud—ostensibly, the contract
profits. As explained above, plaintiff-relator may not argue that an obligation to pay the
government arose solely of the concealment of fraudulent activity. See Pencheng Si, 71 F. Supp.
3d at 97 (“[I]f the conduct that gives rise to a traditional presentment or false statement action also
satisfies the demands of section 3729(a)(1)(G), then there would be nothing ‘reverse’ about an
action brought under that latter section of the FCA.”). Therefore, plaintiff-relator has failed to
state a claim under 31 U.S.C. § 3729(a)(1)(G) (Count III).
3. Conspiracy
Defendant Citibuilders argues that the conspiracy count against it should be dismissed on
the basis of the intracorporate conspiracy doctrine, pursuant to which “there is no conspiracy if the
conspiratorial conduct challenged is essentially a single act by a single corporation acting
exclusively through its own directors, officers, and employees.” Kelley v. D.C., 893 F. Supp. 2d
115, 119–20 (D.D.C. 2012) (internal quotation marks omitted). It argues that Citibuilders is only
alleged to have acted through its officer/employee Neil Parekh and that Citibuilders cannot
conspire with Parekh. Def. Citibuilders’ Mot. Dismiss 3–4. Plaintiff-relator responds that the
conspiracy commenced prior to the formation of Citibuilders and that the conspiracy extended to
26
non-Citibuilders employees, so the intracorporate conspiracy doctrine does not apply. Pl.’s Opp.
25.
The Court finds that defendant Citibuilders’ reliance on the intracorporate conspiracy
doctrine is unavailing. As plaintiff-relator argues, all of the defendants are alleged to have
participated in the conspiracy, not just Neil Parekh and Citibuilders. For example, CSG—a
separate entity from Citibuilders—as well as defendants Narula and Madan are at the center of the
alleged scheme here and are alleged to have participated in the conspiracy. In addition, “the
intracorporate conspiracy doctrine only applies if the individual defendants were acting within the
scope of their shared employment.” Kelley, 893 F. Supp. 2d at 120. Neil Parekh is alleged to
have committed acts apparently outside the scope of his Citibuilders employment in furtherance
of the alleged scheme, for example in his capacity as an officer of CSG. Therefore, defendant
Citibuilders’ intracorporate conspiracy doctrine argument is misplaced and plaintiff-relator has
stated a claim for conspiracy in violation of 31 U.S.C. § 3729(a)(1)(C) (Count IV).
D. OST Defendants
The Complaint shows that the OST defendants—OST, Narula, and Madan—had varying
levels of involvement in the alleged scheme. As summarized above, Narula and Madan are officers
of OST. The Complaint alleges that CB and CSG, as well as Narula, Madan, and Parekh, worked
and operated out of OST’s office space, and that CSG’s bid proposals included false information
regarding work completed at OST’s headquarters. Narula and Madan were involved in the creation
of CSG with defendant Parekh and were involved in the submission of CSG bid proposals—which
allegedly contained false and fraudulent information. Based on the facts alleged in the Complaint,
plaintiff-relator has failed to state a claim against defendant OST for any of the alleged FCA
violations, and has failed to state a claim for reverse false claims against defendants Narula and
27
Madan, but he has sufficiently stated a claim for relief against defendants Narula and Madan for
the presentment of false claims, for making false statements, and for conspiracy.
1. Presentment and False Statements
Plaintiff has stated a claim against defendants Narula and Madan for the presentment of
false claims and the making of false statements, but has failed to state a claim against defendant
OST. First, it is important to note that none of the defendants are alleged to have directly presented
false claims or made false statements to the government—all claims presented and statements
made were in the name of CSG, Citibuilders, or KCGI. 4 Therefore, plaintiff-relator’s claims rest
on the argument that the defendants caused a false claim to be presented or caused a false statement
to be made. See Pl.’s Opp. 10–13. The Court must therefore look at the degree of involvement of
each defendant in the scheme, considering whether the plaintiff has alleged that the defendant’s
conduct was “at least a substantial factor in causing, if not the but-for cause of, submission of false
claims.” Toyobo, 811 F. Supp. 2d at 48; Tran, 53 F. Supp. 3d at 127.
The Complaint fails to allege any facts showing that OST’s conduct (as an entity) was a
substantial factor in causing the submission of fraudulent claims or in making false statements.
OST’s role was limited to the following: CSG relocated its business to OST’s offices, out of which
Parekh, Narula, and Madan worked, Compl. ¶ 84; OST staff employees supported Parekh, Narula,
and Madan in the preparation of bids and proposals submitted in the name of CSG, id. at ¶ 68; and
CSG’s responses to solicitations included false statements pertaining to work alleged to have
4
Although plaintiff-relator states “Narula would personally provide past performance survey responses to the
government,” this statement is included in a paragraph that starts with the assertion that “[t]he CSG response to
solicitations and bid proposals also include material false statements pertaining to work alleged to have been
completed at defendant OST’s corporate headquarters.” Compl. ¶ 102. The statements made by Narula appear to
have been on behalf of CSG.
28
completed at OST’s headquarters, id. at ¶ 102. Nothing indicates that OST was so involved in the
scheme so as to have effectively caused the submission of claims or false statements.
The Complaint does sufficiently allege, however, that the roles played by Narula and
Madan were substantial factors in causing the submission of false claims and false statements. It
states that 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, that they established CSG with
the intent to falsely identify it as SDVOSB by falsely identifying Gogia as the owner, and that they
falsely identified that CSG operated out of a HUBZone. Compl. ¶¶ 43, 50, 51. It also alleges that
Parekh, Narula, and Madan “controlled the likeness of Gogia’s signature which they affix[ed] to
documents to their liking,” that they “were directly responsible for preparing all of the CSG bid
proposals transmitted to the government,” and that they determined the content of the proposals
and when and what contracts would be solicited. Id. at ¶¶ 65–67. It also alleges in various places
that CSG was under the control of Parekh, Narula, and Madan and that Gogia—the purported
owner of CSG—was subservient to them and under their control, and provides examples
evidencing such control. Id. at ¶¶ 74–77. The Complaint then goes on to describe in detail the
false and fraudulent contents of the bid proposals, which Parekh, Narula, and Madan are alleged
to have prepared, and lists the specific contracts awarded as a result. Id. at ¶¶ 86–116.
United States ex rel. Tran v. Computer Sciences Corp. is instructive. In Tran the court
found that the defendant’s (Modis) “participation in the scheme was sufficient to constitute a
‘substantial factor in causing’ CSC’s submission of the false claims.’” Tran, 53 F. Supp. 3d at
128. In Tran, defendant CSC agreed to serve as a prime contractor and to subcontract a certain
percentage of work to qualified small businesses. Id. at 109. Instead, CSC set up a pass-through
scheme in which “it would subcontract work to qualified small businesses, such as Defendant
29
Sagent Partners, LLC (‘Sagent’), and as a condition of the subcontract, those small businesses
would agree to further subcontract the work to large businesses that CSC trusted, such as
Defendant Modis, Inc. (‘Modis’), in exchange for a small fee.” Id. This violated the FCA because
“it permitted CSC to report to the government that the company had met its small business
subcontracting goals when, in reality, large businesses were performing the substantive work under
the contract.” Id. The court found that the complaint was “replete with allegations regarding
Modis’s role in the pass-through scheme, such that there is no doubt that Modis was fully aware
of, and an active participant in, the arrangement that facilitated CSC’s eventual submission of
allegedly false claims and false statements.” Id. at 128. It specifically found that allegations that
Modis’s sales director stated “Modis’s goal in implementing the pass-through scheme was to
‘support [CSC’s] needs to increase its small business spend within its subcontract community,’
and that he ‘worked with other small business vendors . . . to assist CSC in obtaining it small
business spend,’” and that he “suggested using [a certain subcontractor] as ‘a conduit for Modis in
the provision of services to CSC for the purpose of expanding its small business spend.’” Id.
(internal citations omitted). Thus, the court concluded that “these allegations would be sufficient
to establish that Modis was well aware that its actions in implementing the pass-through scheme
would cause CSC’s eventual submission of allegedly false claims and false statements about its
compliance with the small-business subcontracting requirements, and that Modis’s actions were
in fact a substantial factor in causing those submissions.” Id.
Similarly here, the Court finds that, based on allegations against Narula and Madan in the
Complaint, they were well aware that their actions would result in the submission of false claims
by CSG. Narula and Madan are alleged to have actually decided the content of and prepared the
false claims themselves. They are alleged to have falsely identified Gogia as the owner of the
30
company that they formed (with Parekh) for the purpose of fraudulently obtained SDVOSB status,
and to have used Gogia’s signature on documents. It is clear that their actions were a substantial
factor in, if not the driving force behind, the submission of false claims and the making of false
statements to the government in violation of the FCA. See Tran, 53 F. Supp. 3d at 126–27; Toyobo,
811 F. Supp. 2d at 48. Therefore, plaintiff-relator has sufficiently stated a claim against defendants
Madan and Narula under 31 U.S.C. § 3729(a)(1)(A) (Count I) and 31 U.S.C. § 3729(a)(1)(B)
(Count II), but has failed to state a claim against defendant OST under these provisions.
2. Reverse False Claims
Again, however, plaintiff-relator has not stated a plausible claim for relief against any of
the OST defendants for reverse false claims. Like all of the defendants listed above, plaintiff-
relator rests its reverse false claims argument against the OST defendants on the assertion that they
retained government funds that they knew were obtained as a result of fraud. This is insufficient
to show the existence of an obligation to pay the government and plaintiff-relator has failed to state
a claim under 31 U.S.C. § 3729(a)(1)(G) (Count III). See Pencheng Si, 71 F. Supp. 3d at 97.
3. Conspiracy
The OST defendants claim that the Complaint fails to allege a conspiracy to violate the
FCA because it fails to sufficiently allege the underlying FCA violations. OST Defs.’ Mot.
Dismiss 18, ECF No. 86-1. Because plaintiff-relator has failed to sufficiently claim an underlying
FCA violation against defendant OST, plaintiff-relator’s claim against OST for conspiracy fails.
With respect to defendants Narula and Madan, however, the Court has found that plaintiff-relator
sufficiently stated a claim for the presentment of false claims and for making false statements in
violation of 31 U.S.C. § 3729(a)(1)(A) and 31 U.S.C. § 3729(a)(1)(B). Therefore, because
plaintiff-relator has sufficiently stated underlying FCA violations against defendants Narula and
31
Madan, their argument with respect to the conspiracy claim fails and plaintiff-relator has stated a
claim for conspiracy against them.
V. CONCLUSION
In sum, plaintiff-relator has failed to state a claim against all defendants for reverse false
claims in violation of 31 U.S.C. § 3729(a)(1)(G) (Count III). Plaintiff-relator has also failed to
state a claim against defendants Hudson Insurance Co., Hanover Insurance Co., Centennial Surety
Associates, Inc., Michael Schendel, CB Construction Group, Inc., Dilip Parekh, Shobha N. Mehta,
Melvin G. Goodweather, and OST for 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). Defendants Hudson
Insurance Co., Hanover Insurance Co., Centennial Surety Associates, Inc., Michael Schendel, CB
Construction Group, Inc., Dilip Parekh, Shobha N. Mehta, Melvin G. Goodweather, and OST’s
motions to dismiss have therefore been granted. Upon further review, the Court finds that plaintiff-
relator has, however, sufficiently stated a claim against defendants Citibuilders, Ajay K. Madan,
and Vijay Narula for 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 Order granting defendant Citibuilders’ and defendants
Ajay K. Madan and Vijay Narula’s motions to dismiss will be vacated and their motions to dismiss
will be denied in part. Defendants KCGI, Anita Chitnis, and Guatam Chitnis will be dismissed
from this action in accordance with plaintiff-relator’s notice of voluntary dismissal. Counts I–IV
remain pending against defendants CSG, Neil Parekh, and Gogia, and Counts I, II, and IV remain
pending against defendants Citibuilders, Madan, and Narula. A separate order accompanies this
memorandum opinion.
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