United States of America et al v. Tishman Construction Corporation et al

Filing 64

ORDER ADOPTING REPORT AND RECOMMENDATIONS -- For the reasons set forth in the ATTACHED WRITTEN MEMORANDUM AND ORDER and, upon review of the objections made to the thorough and well reasoned Report and Recommendation ("R & R") issued on February 2, 2017, by the Hon. Ramon E. Reyes, U.S.M.J., the objections are overruled and the R & R is adopted in its entirety. Accordingly, defendants' motions to dismiss are granted and this action is dismissed. The Clerk of the Court is directed to enter judgment and close this case. SO ORDERED by Chief Judge Dora Lizette Irizarry on 3/23/2017. (Irizarry, Dora)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA, and the
:
STATE OF NEW YORK, ex rel.
:
MAGDY M. YOUSSEF,
:
:
Plaintiffs,
:
:
MEMORANDUM AND ORDER
-against:
ADOPTING REPORT &
:
RECOMMENDATION
TISHMAN CONSTRUCTION CORPORATION, :
12-cv-03862 (DLI) (RER)
TURNER CONSTRUCTION COMPANY,
:
and THE TURNER CORPORATION,
:
:
Defendants.
:
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DORA L. IRIZARRY, Chief United States District Judge:
Plaintiff-Relator Magdy M. Youssef (“Relator”) initiated this action against defendants
Tishman Construction Corporation (“Tishman”), Turner Construction Company, and The Turner
Corporation (jointly, “Turner” and collectively with Tishman “Defendants”). Relator alleges
claims under the False Claims Act (“FCA”), 31 U.S.C. § 3729, and the New York False Claims
Act (“NY FCA”), N.Y. State Fin. Law § 189. (See generally Second Amended Complaint
(“SAC”), Dkt. Entry No. 49.)
Pursuant to Rule 12 of the Federal Rules of Civil Procedure, Defendants moved to
dismiss the Second Amended Complaint (“SAC”) for failure to state a claim for relief and for
failure to plead fraud with particularity under Rule 9(b). (See Defendants’ Mems. in Supp. of
Mots. to Dismiss, Dkt. Entry Nos. 42-43.) Relator opposed and requested that the Court take
judicial notice of certain relevant facts. (See Pl.’s Resp. in Opp’n to Mot. to Dismiss (“Pl.’s
Resp.”), Dkt. Entry No. 47; Pl.’s Mem. in Supp. of Mot. for Judicial Notice (“Notice Mem.”),
Dkt. Entry No. 53.)

On June 16, 2016, this Court referred Defendants’ motions to dismiss and Relator’s
request for judicial notice to the Hon. Ramon E. Reyes, Jr., U.S.M.J., for a Report and
Recommendation (“R & R”). On February 2, 2017, Magistrate Judge Reyes issued a thorough
and well reasoned R & R recommending that Defendants’ motions to dismiss the SAC be
granted, with prejudice, and denying Relator’s request for judicial notice. (See generally R & R,
Dkt. Entry No. 59.) In granting Defendants’ motions, the magistrate judge found that Relator
had failed to state a claim under both the FCA and the NY FCA because Relator had not pled
fraud in accordance with Rule 9(b)’s heightened pleading standard, as it was not pled with
“particularity.” (R & R at 7-11.) The magistrate judge recommended dismissal of the SAC with
prejudice because “Relator ha[d] amended his complaint numerous times and ha[d] been unable
to cure its deficiencies.” (R & R at 10.)
The magistrate judge denied Relator’s request that the Court take judicial notice of both a
2010 “Excavation and Foundation” subcontractor contract between Yonkers Contracting
Company, Inc. and the Port Authority and of a factual admission made by Tishman in a Deferred
Prosecution Agreement (“DPA”) it entered into in a federal criminal action. (R & R at 4-5.) The
magistrate judge found it “was unnecessary for the Court to take judicial notice” of the
subcontractor contract because it was “discussed and excerpted in the SAC” and “thereby
already incorporated by reference,” and the DPA was irrelevant to the allegations. (Id. at 4.)
On February 16, 2017, Relator timely filed objections to the R & R. (See Objs. to R & R
(“Objs.”), Dkt. Entry No. 60.)

On March 8 and March 9, 2017, Defendants filed their

oppositions to Relator’s objections. (See Tishman’s Opposition to Objections, Dkt. Entry No.
62; Turner’s Opposition to Objections, Dkt. Entry No. 63.)

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For the reasons set forth below, Plaintiff’s objections are overruled and the R & R is
adopted in its entirety.
DISCUSSION1
When a party objects to an R & R, a district judge must make a de novo determination as
to those portions of the R & R to which a party objects. See FED. R. CIV. P. 72(b)(3); United
States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir. 1997). However, if a party “simply relitigates
his original arguments, the Court reviews the Report and Recommendation only for clear error.”
Antrobus v. New York City Dep’t of Sanitation, 2016 WL 5390120, at * 1 (E.D.N.Y. Sept. 26,
2016) (internal citations and quotation marks omitted); see also Rolle v. Educ. Bus Transp., Inc.,
2014 WL 4662267, at *1 (E.D.N.Y. Sept. 17, 2014) (explaining that to allow “a rehashing of the
same arguments set forth in the original papers . . . would reduce the magistrate’s work to
something akin to a meaningless dress rehearsal”) (internal citations and quotation marks
omitted). A court will not “ordinarily . . . consider arguments, case law and/or evidentiary
material which could have been, but [were] not, presented to the magistrate judge in the first
instance.” Santiago v. City of New York, 2016 WL 5395837, at *1 (E.D.N.Y. Sept. 26, 2016)
(internal citation and quotation marks omitted). After its review, the district court may then
“accept, reject, or modify the recommended disposition; receive further evidence; or return the
matter to the magistrate judge with instructions.” FED. R. CIV. P. 72(b)(3); see also 28 U.S.C. §
636(b)(1).
Relator challenges the magistrate judge’s conclusion that Defendants’ practice of billing
the government for standby labor costs “is both reasonable and allocable” under the Federal
Acquisition Regulations (“the FAR”) and, therefore, the fraud claim is unsupported. (R & R at
6-7; Obj. 2-3.) Projects that receive federal funding from Executive Branch agencies must
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The Court assumes the parties’ familiarity with the facts as outlined in the R & R. See R & R at 2-4.

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comply with the FAR. See 48 C.F.R. § 31.000 et seq. The FAR applies to reimbursement
contracts, such as the “Time and Material” and “Cost Reimbursement” contracts at issue in this
case. See 48 C.F.R. §§ 16.301-1, 16.601. Under a reimbursement contract, a contractor may
seek reimbursement for allowable costs that are both “reasonable” and “allocable.” 48 C.F.R. §§
16.201-2, 16.201-3, 16.201-4.

Before the magistrate judge, Plaintiff argued that, “it was

fraudulent for the Defendants” to obtain reimbursement “for the ‘standby trade’ costs that they
included” in their contract payment requisitions. (R & R at 3.) As the magistrate judge
explained, “standby trade” costs are “guaranteed hour provisions of the collective bargaining
agreements . . . to which the Defendants are bound.” (Id.) These guaranteed hour provisions,
“require construction management companies to pay senior union workers additional wages for
minimum labor hours during which the senior union workers services are readily available in
case they are needed during ongoing construction projects.”

(Id.)

The magistrate judge

concluded that Defendants’ practice of seeking reimbursement for standby trade costs was both
“reasonable and allocable” under the FAR.

(Id. at 6-7.)

As such, Relator’s claims were

meritless.
Relator contends, for the first time in his objections to the R & R, that the magistrate
judge failed to “address the core allegation that standby hour costs were secretly passed through
to the government” because Defendants “were obligated to expressly identify those costs and
obtain government consent to payment[.]” (Obj. at 2-3.) The Court will not consider Relator’s
assertion because it is not a proper objection. It is well established that “[n]ew arguments and
factual assertions cannot properly be raised for the first time in objections to the [R & R], and
indeed may not be deemed objections at all.” Hill v. Miller, 2016 WL 7410715, at *1 (S.D.N.Y.
Dec. 21, 2016) (internal citation omitted); Yao Wu v. BDK DSD, 2015 WL 5664534, at *1

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(E.D.N.Y. Sept. 22, 2015) (refusing to consider “facts and arguments [that] were not raised
before” the magistrate judge).
Here, Relator’s objection presents a new theory of liability that was not before the
magistrate judge and, therefore, is not properly before this Court. In both the SAC and in his
opposition papers, Relator advanced only two theories of liability. (See R & R at 6.) First,
Relator argued that “Defendants’ charging the Government for the costs of standby labor,
pursuant to their CBAs, violate[d] the FAR.” (R & R at 6 citing SAC ¶¶ 20-32.) Next, Relator
alleged that “billing for the costs of standby workers violate[d] a basic fraud principle that
Defendants cannot charge the Government for work that is not actually performed.” (R & R at 6;
Pl.’s Resp. at 8; SAC ¶ 24.) The magistrate judge was unable to address Relator’s “core
allegation” that Defendants “secretly passed” standby hour costs to the government because
Relator first made the argument in his objections to the R & R. As Relator’s argument is new,
the Court declines to consider it. See Fisher v. O’Brien, 2010 WL 1286365, at *1 (E.D.N.Y.
Mar. 30, 2010) (refusing to consider new argument raised for the first time in R & R objections).
Relator further contends that the magistrate judge’s finding that standby hours were
“allocable” and “reasonable” under the FAR, was made improperly because he did so “prior to
discovery and the development of a factual record.” (Obj. at 5-6.) Through his objection,
Relator seeks to relitigate an issue that was before the magistrate judge and, as such, this Court
reviews this finding for clear error. See E. Sav. Bank, v. Robinson, 2016 WL 3102021, at *3
(E.D.N.Y. June 2, 2016). In his opposition to Defendants’ motions to dismiss, Relator argued to
the magistrate judge that, whether standby hours “satisfied regulatory reimbursement
requirements [could not] be resolved on a motion to dismiss” because discovery was necessary to
determine if “billing standby hours to federally-funded construction projects was ‘allocable’ and

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reasonable[.]’” (Pl.’s Resp. at 16.) The magistrate judge considered the argument and found
“that billing the Government for standby costs is both reasonable and allocable” and
recommended “finding that Relator has failed to adequately plead a violation of the FAR.” (R &
R at 7.) Upon a review of this portion of the R & R for clear error, the Court finds none because
Relator’s SAC does not “unlock the doors of discovery for a plaintiff armed with nothing more
than conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678-79, (2009); Main St. Legal Servs., Inc. v.
Nat’l Sec. Council, 811 F.3d 542, 567 (2d Cir. 2016) (“A plaintiff who has failed adequately to
state a claim is not entitled to discovery.”).
With respect to the magistrate judge’s refusal to take judicial notice of the DPA, Relator
asserts that the magistrate judge erred because the DPA describes “precisely the fraudulent
scheme detailed by the Relator in his filed complaint.” (Obj. at 3.) Relator’s objection simply
reiterates the identical argument made to, and rejected by, the magistrate judge. Before the
magistrate judge, Relator argued that the DPA explained “exactly the same mechanism involved
in the fraud alleged in the Complaint.” (Notice Mem. at 9.) The magistrate judge rejected
Relator’s argument and declined to take judicial notice of the DPA because the DPA “pertain[ed]
to separate and contradictory conduct from what Relator use[d] as the basis of his claims.” (R &
R at 5.) “[W]hen a party raises arguments that were already addressed by the Magistrate Judge,
the District Court need only review the Magistrate Judge’s decision for clear error.” Chao v.
Int’l Bhd. of Indus. Workers Health & Welfare Fund, 97 F. Supp.3d 268, 275 (E.D.N.Y. 2015);
Ortiz v. Barkley, 558 F. Supp.2d 444, 451 (S.D.N.Y. 2008). The Court finds no clear error here.
The magistrate judge correctly concluded that the factual content in the DPA had nothing to do
with Relator’s allegations. (R & R at 5.)

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Relator further objects to the R & R asserting that the magistrate judge ignored the fact
that Relator’s “allegations were made upon personal knowledge,” in determining that fraud was
pled insufficiently. (Obj. at 4-5.) Relator’s objection is overruled because it misconstrues the
applicable law and the R & R. As the magistrate judge correctly explained, Relator must assert
FCA and NY FCA claims under Rule 9(b)’s heightened fraud standard. (R & R at 8, collecting
cases.) “To satisfy this Rule, a complaint alleging fraud must (1) specify the statements that the
plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the
statements were made, and (4) explain why the statements were fraudulent.” United States ex
rel. Ladas v. Exelis, Inc., 824 F.3d 16, 25 (2d Cir. 2016) (internal citation and quotation marks
omitted). The magistrate judge found that Relator did not satisfy these elements because Relator
“failed to identify any specific fraudulent claims made by the Defendants, any contract provision
that was violated, or any contract in which allegedly fraudulent misrepresentations caused the
Government to wrongfully reimburse the Defendants.” (R & R at 9.) Relator’s general and
conclusory assertion that “[h]is personal knowledge and the articulation of the specific fraudulent
scheme” is “more than sufficient to survive a motion to dismiss” does not explain how the
magistrate judge reached his determination in error and the Court finds that the magistrate judge
did not err. (Obj. at 5.)
Moreover, contrary to Relator’s assertion, the magistrate judge did not fail “to properly
account for the Relator’s personal knowledge.” (Id. at 4.) The magistrate judge concluded that,
“Relator ha[d] consistently failed to provide any precise details about the supposedly fraudulent
scheme.” (R & R at 9.) In reaching this determination, the magistrate judge explained that,
among other things, Relator’s “direct experience as a senior-level employee” of Defendants
provided “little more than vague, conclusory allegations.” (Id.) Indeed, in finding that the SAC

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was “rampant with conclusory allegations that have no factual support,” the magistrate judge
quoted Relator’s allegation that, “based on his experience . . . standby workers did not report to
the project site at all.” (R & R at 10 n. 7 quoting SAC ¶ 31.) Relator’s personal knowledge does
not excuse him from providing non-conclusory allegations of fact that identify “the who, what,
when, where and how of the alleged fraud.” U.S. ex rel. Polansky v. Pfizer, Inc., 2009 WL
1456582, at *4 (E.D.N.Y. May 22, 2009) (internal citation and quotation marks omitted).
Accordingly, on a de novo review, the Court finds that Relator has failed to allege fraud with the
particularity required under Rule 9(b).
Relator’s final objection is to the magistrate judge’s dismissal of the SAC with prejudice
without allowing him an opportunity to amend. (Obj. at 6-7.) Although Defendants moved to
dismiss the SAC with prejudice, Relator did not seek leave from the magistrate judge to file a
third amended complaint in opposing to Defendants’ motions to dismiss. Instead, Relator waited
to do so in his objection to the R & R, claiming he should be granted leave to amend, yet again,
because he can do so with greater particularity. (Id.) Notably, Relator did not submit a proposed
third amended complaint with his objections to support this conclusory statement. Nonetheless,
“[a] district court will generally not consider arguments that were not raised before the
magistrate judge.” U.S. Bank Nat. Ass'n v. 2150 Joshua’s Path, LLC, 2014 WL 4542950, at *2
(E.D.N.Y. Sept. 10, 2014) (internal citation and quotation marks omitted) (collecting cases).
Relator could have requested leave to amend before the magistrate judge, but did not do
so. Accordingly, this Court will not consider his request now. Refusal to consider Relator’s
belated request is appropriate here because the magistrate judge correctly found that, “[d]espite
filing multiple complaints, Relator has consistently failed to provide any precise details about the
supposedly fraudulent scheme.” (R & R at 9.) In his objections, Relator asserts that he only

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amended his complaint once and only in response to motions to dismiss. (Obj. at 6.) Relator has
filed multiple complaints, has not described how he would cure the deficiencies in the SAC, and
is not “entitled to an advisory opinion from the Court informing [him] of the deficiencies of the
complaint and then an opportunity to cure those deficiencies.” In re Eaton Vance Mut. Funds
Fee Litig., 403 F. Supp.2d 310, 318 (S.D.N.Y. 2005)(citation omitted), aff’d sub nom. Bellikoff v.
Eaton Vance Corp., 481 F.3d 110 (2d Cir. 2007). Moreover, considering Relator’s request,
when it was not advanced before the magistrate judge, would turn the proceeding before the
magistrate judge into an inappropriate trial run for Relator’s deficient complaint. See Everson v.
N.Y. City Transit Auth., 2007 WL 539159, at *2 n. 1 (E.D.N.Y. Feb. 16, 2007) (“Proceedings
before the magistrate judge are not a trial run[.]”). Thus, the Court will not consider Relator’s
request.
CONCLUSION
Upon reviewing for clear error the remainder of the R & R to which Relator does not
object properly and finding none, the R & R is adopted in its entirety. See Morris v. Local 804,
Int’l Bhd. of Teamsters, 167 F. App’x 230, 232 (2d Cir. 2006) (Summary Order) (“The district
court need not, however, specifically articulate its reasons for rejecting a party’s objections or for
adopting a magistrate judge’s report and recommendation in its entirety.”).

Accordingly,

Defendants’ motions to dismiss are granted and this action is dismissed with prejudice.
SO ORDERED.
Dated: Brooklyn, New York
March 23, 2017
/s/
DORA L. IRIZARRY
Chief Judge

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