A Federal Judge Refused to Toss a Whistleblower Suit Claiming Contractors Conspired to Defraud the Government and Exclude Minority and Disadvantaged Contractors
[Updated February 2018] The federal government and many states have programs designed to spur minority, veteran and disadvantaged small businesses. These so-called minority business set aside programs require government agencies to set aside a certain percentage of contract work for qualifying businesses. Unfortunately, many businesses cheat and set up fake companies so that they can get all the work. That does nothing for disabled veterans and other qualified small businesses.
Salina Savage filed a whistleblower suit under the federal False Claims Act in 2014. She accused Jonetta Everano and Jessica Morales of running fake businesses simply to get government contracts. Everano and Morales claimed to be small, disadvantaged businesses. That designation helped them land a piece of the $4.5 billion cleanup of the former Hanford nuclear site.
Salina was a competitor of Everano and Morales. She claims that their actions defrauded taxpayers and legitimate disadvantaged businesses who wanted to compete for the cleanup.
The case is somewhat unusual because Salina is a competitor. The False Claims Act requires that whistleblowers seeking an award possess original source or inside information. That means most whistleblowers commonly work inside the business committing the fraud. The law doesn’t require the insider to be a current or former employee, however.
Properly pleading cases brought by outsiders is an art form, particularly in the many states that have “heightened pleading standards.” These states require actual examples of fraud; the who, what, when and how.
Everano and Morales are disputing the allegations against them. As a preliminary matter, however, they asked the court to dismiss the case because Savage didn’t have enough facts. We often see wrongdoers argue technicalities instead of facts. Everano and Morales are not saying that Savage is wrong, instead they argue that she doesn’t have proof. The difference is subtle but important.
This week a federal judge in Spokane refused to dismiss the case. In ruling for Savage, Judge Salvador Mendoza said that Savage had enough details to show the “time, place and nature” of the alleged fraud. The ruling is a huge victory for Savage. It means she can now proceed to gather evidence, subpoena documents and depose witnesses. If she didn’t have enough before, she certainly should find more information now that the court ruled her suit can proceed.
The primary contractor for the Hanford cleanup is CH2M Hill Plateau Remediation Co. One of the largest subcontractors on that project is FE&C. Savage claims that CH2M and FE&C conspired together to create phony businesses that qualified for a minority business set aside. The idea was these business would appear to be owned and operated by a disadvantaged individual but in reality, FE&C would do all the work.
More money for the fraudsters and nothing for legitimate small and disadvantaged businesses.
Savage claims that an FE&C employee, Jonetta Everano, created a company called Phoenix Enterprises Northwest in 2009. As a woman, Everano would qualify for a minority business set aside. Although she would “own” most of the company, Savage says the business was really a front for FE&C. Everano apparently contributed no start up cash or equipment and instead relied on FE&C to do the work. In the words of Judge Mendoza, the business appeared to be a mere “facade.”
Savage caught Everano red-handed and ultimately got the Small Business Administration to declare Everano’s company ineligible. She says that is when Everano teamed up with Morales and created another eligible business, this one a company that took advantage of the HUBZone program that gives contracting preferences to businesses that draw employees from Native American reservations.
Once again, Savage claimed the new company was a fraud and front for FE&C. She believes the new company was formed to appear to qualify for the minority business set aside program. [This case involved several small business set aside and Disadvantaged Business Enterprise set asides including: small business set aside, small disadvantages business set asides, Woman Owned Business set asides, HUBZone set aside, veteran owned business and service disabled veteran owned business set aside programs.]
The case is in its early stages. For now, Salina Savage has beat back all attempts to dismiss her suit. The corporate defendants had previously lost their motions to dismiss the case in October. By beating the motions to dismiss, she is one step closer to a jury trial and victory.
February 2018 Update: It’s been almost two and a half years since we posted this story. Much has happened since then. Finally, however, it looks like the end is in sight. A successful end for the whistleblower who first reported the wrongdoing in 2012! Most cases don’t last this long but ultimately justice usually prevails once whistleblowers can clear the procedural minefields.
One of the defendants in this case, Phoenix Enterprises, decided to sue Savage claiming that since the government didn’t do anything the case must be frivolous. Of course, the government finally did decide to do something and even if they don’t intervene, that doesn’t make a whistleblower’s case frivolous. In fact, more and more the Justice Department is permitting the whistleblower’s own lawyers to prosecute.
Over the last 30 months we also saw dozens of new motions filed. When the wrongdoers can’t win on the facts, they often try to win on technicalities and procedural ploys. On the eve of the final set of motions before trial, it appears the case settled.
What we can report is that on January 9th, the parties advised the court:
The United States and WCH have been diligently working on settlement negotiations and have reached a proposed agreement in principle, which, if finalized and executed, would resolve the instant litigation in its entirety. However, this proposed agreement in principle is subject to several specified contingencies and remaining issues that require further resolution between the Parties. Additionally, the United States needs a limited amount of time in order to obtain the necessary authorizations and approvals for the proposed settlement.
We anticipate the matter will be resolved favorably any day. When it is, we will update this post again.
Whistleblower Awards and the Minority Business Set Aside Program
Whistleblowers are the new American heroes. Most are honest, hard working people tired of watching greed and corruption in their workplace. Others like Salina Savage are competitors that simply want to make an honest living and have a level playing field.
Saving money for taxpayers and doing the right thing are enough motivation for most whistleblowers. The False Claims Act, however, pays also pays awards to those who come forward and contains powerful anti-retaliation provisions.
We realize it hard to raise your hand and take a stand against corruption. So did Congress. Since the U.S. Civil War, the False Claims Act pays awards to those with inside information involving government funds or programs. That includes SBA, Department of Defense, and other minority business set aside programs. Awards can be as high as 30% of the amount collected from wrongdoers. In cases like this, the penalties can be as much as three times the contract amount or even higher.
Need more information? Give us a call. Our whistleblower clients have already collected over $100 million in awards. For more information, read our free 11 step guide to whistleblowing or contact attorney Brian Mahany at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept confidential.
[Does tthe information you have relate to a small business set aside? Visit our small business set asides post too.]
MahanyLaw – America’s Minority Business Set Aside and DBE Fraud Whistleblower Lawyers