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United States of America Ex Rel. Lothar E.S. Budike, Sr. v. Peco Energy

September 13, 2012

UNITED STATES OF AMERICA EX REL. LOTHAR E.S. BUDIKE, SR.
v.
PECO ENERGY, ET AL.



The opinion of the court was delivered by: Surrick, J.

MEMORANDUM

Presently before the Court are Defendants PECO Energy Company, Philadelphia Regional Port Authority and General Dynamics American Overseas Marine's Motions To Dismiss the Amended Complaint. (ECF Nos. 43-45.) For the following reasons, the Motions will be granted in part and denied in part.

I. JURISDICTION

We have subject matter jurisdiction over the alleged violations of the False Claims Act ("FCA," or the "Act") in the instant action pursuant to 31 U.S.C. § 3732(a) and 28 U.S.C. § 1331.*fn1 We also have supplemental jurisdiction over the state law claim pursuant to 28 U.S.C. § 1367. United States ex rel. Wilkins v. United Health Grp., 659 F.3d 295, 302 (3d Cir. 2011).

II. BACKGROUND

A. Background Facts*fn2

1. PRPA Provides Electric Power To LMSR Naval Vessels On January 29, 2003, the Philadelphia Regional Port Authority ("PRPA") and the United States entered into a contract, No. "N00033-03-C-5310." (Am. Compl. ¶ 14, ECF No. 18.)*fn3

Pursuant to this contract, PRPA agreed to provide electric power to two Large, Medium-Speed, Roll-On/Roll-Off ("LMSR") Naval Vessels ("Vessels") at the Tioga Marine Terminal ("Terminal"), located in Philadelphia, Pennsylvania. (Am. Compl. ¶¶ 14-15.) The United States

In addition, an individual against whom an employer retaliated for assisting with an FCA investigation or proceeding may bring a private cause of action. 31 U.S.C. § 3730(h). Under Section 3730(h), the individual may seek remedies, including reinstatement, two times the amount of backpay in addition to interest on the backpay, special damages, litigation costs and attorneys' fees. Id.; see generally Graham Cnty., 545 U.S. at 412.

agreed to procure electric power from PRPA, which agreed to subcontract electric services "at the most competitive rates obtainable." (Id. at ¶ 18.) The competitive rates were to be supported by documentation. (Id. at ¶ 20.) The electric power consumed on the Vessels was to be measured on the local utility's meter. (Id. at ¶ 16.)

On April 25, 2003, PRPA began ordering electric power from PECO Energy Company ("PECO"). (Id. at ¶¶ 16-17, 21.)*fn4 On October 17, 2003, the Vessels arrived at the Terminal. Shortly after their arrival, PECO began generating and submitting monthly bills to PRPA. (Am. Compl. ¶ 22.) These bills reflected the demand for, and consumption of, electric power supplied to the Vessels. (Id.)

2. AVE's Comprehensive Energy Audit on Behalf of PRPA Relator Lothar E.S. Budike, Sr. is a federally licensed United States Marine Chief Engineer, and President of A-Valey Engineers, Inc. ("AVE"), a multi-disciplinary engineering and consulting firm. (Id. at ¶ 8.) AVE has over fifty years of experience in working with naval vessels. (Id. at ¶ 54.)

In 2005, PRPA hired AVE to provide on-call engineering services at its facilities. (Id. at ¶ 26.) AVE conducted a preliminary investigation. At the conclusion of this investigation, AVE recommended a comprehensive energy audit for PRPA. (Id.) After reviewing this recommendation, James T. McDermott Jr., Executive Director of PRPA, and Charles J. Lawrence, Director of Engineering for PRPA, expressed concern that PECO was submitting inflated bills for the electric power that was being supplied to the Vessels. (Id. at ¶ 29.)

As a result, PRPA hired AVE to conduct the recommended comprehensive energy audit. (Id.) After the initial stages of the comprehensive audit, AVE confirmed to PRPA that its billing concerns were valid. (Id. at ¶ 30.)

On June 22, 2006, PRPA notified PECO that it had retained AVE to investigate the electric power charges and authorized PECO to release to AVE all documentation and information related to the investigation. (Id.) On August 7, 2006, AVE requested from PECO copies of certain documents, including contracts and monthly bills to PRPA from January 2003 to July 2006. (Id. at ¶ 31.) On August 21, 2006, PECO responded that all of the documents that AVE requested were not available since PECO had moved its office location and, over the course of the move, some documents had been discarded. (Id. at ¶ 32.) On September 18, 2006, AVE again requested the information it deemed necessary to complete its audit. (Id. at ¶ 35.) AVE also requested that PECO respond in writing to its request for documents. (Id.) On October 3, 2006, PECO stated that it did not possess any signed agreement between PECO and PRPA with respect to the Vessels. (Id. at ¶ 33.) PECO stated that the first bill that it submitted to PRPA, which had been paid, set forth the terms of agreement. (Id. at ¶ 34.) In addition, PECO provided AVE with "an informal, unexplained, customer totalized report for PECO meter (918MQEC-45482K) installed at the PRPA's LMSR Naval Vessel(s) location," as well as "non-specific blank forms and reference documents associated with the typical process required to energize a commercial customer's facility." (Id. at ¶ 36.) AVE concluded that it was not going to be provided with all of the documents requested from PECO. AVE continued to conduct the audit using information and documents obtained from PRPA's record retention system. (Id. at ¶ 37.) This included copies of PECO's monthly bills from September 4, 2003 to April 20, 2007. (Id.)

As part of its investigation, AVE installed its own meter and monitoring equipment throughout the Vessels. (Id. at ¶¶ 38-39.) This enabled AVE to monitor continuously and capture the Vessels' energy consumption from September 29, 2006 to April 30, 2007. (Id. at ¶ 40.)

3. Allegations of PECO's Overcharges and Attempts To Conceal These Overcharges

Relator alleges that "Defendants engaged in a pattern of deception, and fraudulently account[ed] for electric power supply purportedly used in the performance of a government program and contract that was billed to and paid by the United States" and that they fraudulently manipulated and grossly inflated the cost of the monthly utility bills submitted to the United States, by directly inflating the units of kilowatts consumed, installing expensive and unnecessary capacitor bank equipment, charging the United States and Commonwealth of Pennsylvania for unnecessary costs and misrepresenting the level of services provided to the United States. (Id. at ¶ 4.) Specifically, Relator alleges that PECO's monthly energy bills from September 4, 2003 to April 20, 2007 were "grossly inflated and unrealistic." (Id. at ¶ 44.)

a) Allegations of False Actual Load Usage Data In September 2006, shortly after AVE commenced capturing the Vessels' energy consumption, PECO's electric supply meter shut down and ceased to capture electric load usage data. (Id. at ¶ 41.) During this shut-down period, PECO submitted estimated load usage and meter data to PRPA for payment.*fn5 On March 20, 2007, PECO removed its meter entirely. (Am. Compl. ¶ 42.) From March 20, 2007 to April 9, 2007, PECO submitted to PRPA bills stating actual load usage data. The data amounted to 793,715 kWh total. (Id. at ¶ 43.)*fn6

b) Allegations of PECO's Overcharges

Relator's allegations of PECO's overcharges are as follows:

* On April 25, 2003, six months before the Vessels arrived at the Terminal, PECO prepared a contract for supplying electric power to the Vessels. Relator asserts that PECO "knowingly and intentionally" prepared this "illusory" document, in which figures were "grossly inflated and unrealistic." (Am. Compl. ¶ 45.) PECO agreed to reassess this contract once the Vessels arrived at the Terminal and began consuming electric power. (Id.) In accordance with this agreement, PECO prepared another electric-power-supply contract once the Vessels arrived at the Terminal. (Id. at ¶ 46.) Relator alleges that while PECO lowered its electric demand requirements, they were still "grossly inflated, unrealistic and a detriment to the United States." (Id.) Relator asserts that PECO "knowingly and intentionally continued to grossly overcharge the PRPA, who in-turn continued to grossly overcharge[] the United States" and attempted to conceal their "overbilling practices." (Id.)

* During the periods in which only one Vessel was in port, PRPA submitted to the United States expenditure reports that reflected a dollar amount per kilowatt ("kw") that was lower than what PECO was charging PRPA per kw. (Id. at ¶ 47.) Specifically, PRPA subtracted kw usage from the bills submitted by PECO to PRPA. (Id. at ¶ 23.) Relator alleges that these reports were "false" and "knowingly and intentionally" submitted and reflects attempts by PECO and PRPA to conceal PECO's overbilling practices. (Id. at ¶ 47.) Relator alleges that this is evidenced by the fact that the electric power consumption rates on the expenditure reports that PRPA submitted to the United States did not match the corresponding data on the bills that PECO sent to PRPA. (Id. at ¶ 48.) PECO charged PRPA over ten cents per kw, whereas the reports that PRPA submitted to the United States reflected a four-cents-per-kw charge. (Id.) The United States, relying on the reports submitted to it by PRPA, paid the electric power bills for the Vessels in full. (Id. at ¶ 24.) Relator asserts that from September 29, 2006 to April 30, 2007, the United States was overbilled "in excess of $1.4 million dollars." (Id. at ¶ 25.)

* PECO "knowingly and intentionally overcharged the Commonwealth of Pennsylvania during the period when there were no LMSR Naval Vessel(s) in port." (Id. at ¶ 49.) To maintain a "threshold payment of $25,000 [] per month," PECO charged the Commonwealth "as much as $1.40 per kw." (Id.)*fn7 The average retail price of electric power for commercial customers between the years 2003 to 2007 was between 8.03 and 9.65 cents per kw. (Am. Compl. ¶ 49.) AVE and another engineering company, Avoca Engineers and Architects, LLC, conducted tests and, as a result, collectively determined that it was impossible for the Vessels to have consumed the number of kws stated on the bills. (Id. at ¶ 51.)

* AVE assessed PECO's power supply substation and power distribution equipment. (Id. at ¶ 53.) It reviewed the substation design documents and technical requirements. (Id.) AVE concluded that Defendants miscalculated the energy requirements for the Vessels and that the substation design was "oversized and flawed." (Id.) Defendants also installed "unnecessary and expensive capacitor bank equipment." (Id. at ¶ 55.) Defendants attempted to justify this installation by explaining that the docked Vessels had a "low power factor." (Id.)*fn8 Relator asserts that the alleged "low power factor" was impossible since the Vessels were in a docked position and were "practically dormant." (Am. Compl. ¶¶ 55, 57.) Installing the capacitor bank equipment resulted in an increase in the United States' utility bill by as much as thirty percent, through "ratchet charges." (Id. at 55.)*fn9 Relator asserts that Defendants "knew or should have known that this unnecessary capacitor equipment would increase the United States['] utility bill up to as much as thirty (30%) percent" and installed this equipment "to further subject the United States to grossly inflated and unrealistic electric utility overcharges." (Am. Compl. ¶¶ 55-56.) In addition, AVE inspected all input and output characteristics of the main switchgear, power transformers, secondary auxiliary electrical equipment, feeds, cable terminations, tracing cable layouts and raceways. (Id. at ¶ 58.) AVE identified and reported to PRPA the "improprieties committed by PECO," which included the improperly designed and installed electrical power supply substation and its auxiliary equipment. (Id.) Over the course of its investigation, AVE repeatedly requested from PECO and PRPA official documents supporting the design, building, construction and inspection of the electric power supply substation. (Id. at ¶ 59.) AVE never received these documents. (Id.)

* For one of the Vessels, only one of the four amp circuit breakers was energized. (Id. at ¶ 61.) With the remaining three circuit breakers tripped, the Vessel functioned normally with less than a 400 amp load. (Id.)*fn10 Relator alleges that Defendants billed the United States "over and above what the vessels could actually consume." (Am. Compl. n.6.)*fn11

4. AVE Reports the Findings of Its Investigation to Defendants AVE discussed with PECO, PRPA, General Dynamics American Overseas Marine ("AMSEA"),*fn12 the United States and John Duke, the Chief Engineer of one of the Vessels, the irregularities and overcharges it discovered during its investigation. (Am. Compl. ¶¶ 60, 62-63.) At one point in time, PECO agreed to reimburse the United States for its overcharges. (Id. at ¶ 67.) At another point in time, AMSEA became active in the investigation and installed its own usage and consumption meters on the Vessels. (Id. at ¶ 68.) AMSEA compared its meter readings with AVE's meter readings and concluded that AVE's readings were accurate. (Id.) PRPA and AMSEA together concluded that PECO's electric charges were up to forty percent higher than both AMSEA's and AVE's meter readings. (Id. at ¶ 69.)

AMSEA subsequently requested that AVE drop its investigation because (i) there was no actual independent data going back several years to corroborate AVE's findings and (ii) the Vessels could, in fact, draw the amount of kws that was being billed by PECO. (Id. at ¶ 70.)

Relator asserts that AMSEA could have provided the missing independent data that AVE needed to complete its comprehensive audit but that it did not. (Id. at ¶ 73.)

5. Termination of AVE's Services

PRPA issued a stop-work order, which terminated AVE's investigation. (Id. at ¶ 70.) AVE's contract was terminated. (Id. at ¶ 74.)

B. Procedural History

Relator submitted a complaint to the Attorney General of the United States and the United States Attorney's Office for the Eastern District of Pennsylvania. (Id. at ¶ 75.) In the complaint, Relator alleged that the "improper billing practices by PECO, PRPA and AMSEA were systemic and widespread in its implementation across the country whenever LMSR Naval Vessel(s) were docked and where they were using shore power electric supply power." (Id.)

On October 3, 2007, Relator filed a qui tam complaint, pursuant to the FCA. (Compl., ECF No. 1.) Relator alleged that the named defendant in the action, PECO, submitted false and fraudulent claims and cost reports to the United States Navy in order to obtain "hundreds of thousands of dollars in overpayment for electricity and related services." (Id. at ¶ 2.) Relator asserted three causes of action under the FCA: (i) presentation of false claims; (ii) making or using false records or statements to cause a false claim to be presented; and (iii) making or using false records or statements to avoid an obligation to refund. (Id. at ¶¶ 14-24.) Relator requested relief in the form of civil damages, treble damages and attorneys' fees and costs. (See Compl.) The qui tam complaint was sealed pursuant to 31 U.S.C. § 3730(b)(2).

On November 1, 2010, the United States notified the Court of its intention to not intervene in this action. (ECF No. 14.)*fn13 On November 2, 2010, we entered an Order that the qui tam complaint be unsealed. The other contents of the Court's file in this action were to remain under seal. (Nov. 2 Order, ECF No. 15.) On November 3, 2010, Relator filed a motion requesting a 180-day extension of the seal on the qui tam complaint and related filings, as well as "a corresponding extension of time for Service of the Complaint pursuant to Fed. R. Civ. P. 4(m)." (Rel.'s Ext'n Mot., ECF No. 16.) Relator stated that he required "additional time to evaluate the information that was recently provided to us by the United States Attorney Office, to conduct further investigative work, and to go over all the facts and circumstances surrounding this highly sensitive case." (Rel.'s Ext'n Mem. 1, ECF No. 16.) Relator further stated that "[t]he events involved in this action occurred in the year 2007 and go back several years respectively.

If Plaintiff is not allowed an extension of time in which to serve the defendants, through no fault of his own, portions of his claims against these defendants could be time-barred." (Id. at 2.) This motion was granted on November 17, 2010. (Nov. 17 Order, ECF No. 17.) The Order granting this motion stated that "[t]he complaint, docket entries and all filings, including the Relators' Motion, shall REMAIN UNDER SEAL until April 3, 2011 or further Order of this Court" and that "[t]he Relators' period in which to conclude its investigative work and to further advise the Court of its decision to proceed in this civil action shall be EXTENDED to April 3, 2011 or further Order of this Court." (Id. at ¶¶ 2-3.)

On April 8, 2011, Relator filed an Amended Complaint. (Am. Compl.) The Amended Complaint named as additional defendants PRPA and AMSEA and contained additional factual allegations. (Id.) The Amended Complaint alleged three Counts: (i) violation of the FCA (Count I); (ii) retaliation and discrimination under the FCA (Count II); and (iii) retaliatory discharge of Relator (Count III). (Id. at ¶¶ 77-86.) The relief requested was the same as in the original qui tam complaint. (Id. at ¶¶ 1, 81, 83, 86.) On May 4, 2011, we ordered that the Amended Complaint be unsealed and be served on Defendants. (May 4 Order, ECF No. 20.) On August 9, 2011, we ordered that all documents filed in this action by Relator be unsealed. (ECF No. 29.) The docket text for all docket entries in this action and all documents filed after the United States' notice to decline intervention were unsealed on August 22, 2011. (ECF No. 34.) On July 25, 2011, the Amended Complaint was served on PECO and PRPA. On August 1, 2011, the Amended Complaint was served on AMSEA. (ECF Nos. 39-41.)

On October 14, 2011, PECO filed a Motion To Dismiss Relator's Amended Complaint. (PECO Mot., ECF No. 43.) PECO seeks dismissal of the ...


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