United States of America et al v. R & F Asphalt Unlimited, Inc. et al

Filing 48

MEMORANDUM AND ORDER re 31 Motion for Sanctions. Defendant BTB Corporation's motion requesting the imposition of sanctions against relators Betteroads Asphalt, LLC and Betterecycling Corporation is DENIED. Signed by Judge Francisco A. Besosa on 03/07/2016. (brc)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
UNITED STATES OF AMERICA, ex
rel. BETTEROADS ASPHALT, LLC,
BETTERECYCLING CORPORATION,
Plaintiffs,
v.

Civil No. 14-1855 (FAB)

R & F ASPHALT UNLIMITED, INC.,
BTB CORPORATION, JUAN VÁZQUEZDONIS, JUAN RAÚL ROBLES-RIVERA,
Defendants.

MEMORANDUM AND ORDER
BESOSA, District Judge.
Before the Court is defendant BTB Corporation (“BTB”)’s motion
requesting the imposition of sanctions against relators Betteroads
Asphalt, LLC and Betterecycling Corporation for their alleged
violations of the False Claims Act (“FCA”)’s seal requirement for
qui tam actions.1

(Docket No. 31.)

Relators opposed (Docket

No. 33), BTB replied (Docket No. 43), and relators filed a surreply
(Docket No. 45).

The United States submitted a brief explaining

why it does not support sanctions against relators.
No. 44.)

(Docket

For the reasons that follow, BTB’s motion for sanctions

(Docket No. 31) is DENIED.

1

Defendants R & F Asphalt Unlimited, Inc. and Juan Raul RoblesRivera joined BTB’s motion requesting the imposition of sanctions.
See Docket Nos. 37-38.

Civil No. 14-1855 (FAB)

2
I.

BACKGROUND

On February 4, 2014, El Vocero newspaper published an article
reporting BTB’s alleged fraud in connection with its bid to pave
the runway at Aguadilla’s Rafael Hernandez Airport.
No. 39-1 at pp. 3-4.)

(Docket

The article quotes relators’ CEO as stating

that BTB made false representations about the type of asphalt it
would use to pave the runway.

Id.

The article also reports that

relators filed a complaint with the Puerto Rico Ports Authority
(“PRPA”) and informed the Federal Aviation Administration about the
alleged fraud.

Id.

According to the article, PRPA indicated that

it had commenced an internal audit of BTB’s bid, award, and
execution of the runway project.

Id.

On February 5, 2014, in response to the information published
in El Vocero, the Puerto Rico Senate ordered an investigation into
the bidding process and the asphalt used to pave the Aguadilla
airport runway.

(Docket No. 44-2.)

On November 24, 2014, relators filed a complaint pursuant to
the qui tam provision of the FCA, alleging the same fraud that El
Vocero reported nine months earlier. The complaint was filed under
seal, as required by 31 U.S.C. § 3730(b)(2).
On December 16, 2014 and February 18, 2015, while the qui tam
complaint remained under seal, El Vocero published two articles
about the alleged Aguadilla airport runway fraud. (Docket No. 39-1
at pp. 1-2, 5-8.)

Relators’ CEO is quoted in both articles

Civil No. 14-1855 (FAB)

3

explaining why the type of asphalt that BTB claimed it used to pave
the Aguadilla airport runway is actually unavailable in Puerto Rico
and impossible to ship to the island.

Id.

Relators’ CEO also

accuses BTB of improper activities in other government projects.
Id.

The articles discuss the general allegations of fraud in the

Aguadilla airport project but do not disclose the existence of the
sealed qui tam action.

See id.

BTB alleges that relators’ CEO discussed the allegations
contained in the qui tam complaint on a local radio show while the
complaint was under seal.

(Docket No. 31 at p. 4.)

On March 18, 2015, the United States intervened in the qui tam
action and filed an amended complaint and settlement agreements.
See Docket Nos. 12-15.

On March 23, 2015, the Court unsealed the

amended

all

complaint

complaint.

and

(Docket No. 18.)

documents

filed

after

the

amended

On that same day, the Court entered

judgment in the case, approving the parties’ settlement agreements.
(Docket No. 22.)

Pursuant to the agreements, defendants BTB and

Juan Vázquez-Donis jointly and severally must pay the United States
$3,605,629, and defendants R & F Asphalt Unlimited, Inc. and Juan
Raúl Robles-Rivera also jointly and severally must pay the United
States $3,605,629.

Id.

The agreements provide that the United

States will compensate relators twenty percent of the total funds
recovered.

Id. at p. 2.

Civil No. 14-1855 (FAB)

4
II.

DISCUSSION

Defendant BTB moves the Court to sanction relators.
No.

31.)

BTB

claims

that

relators

violated

the

(Docket

FCA’s

seal

requirement when their CEO disclosed the allegations contained in
the qui tam complaint to El Vocero newspaper and on a local radio
show while the complaint was under seal.

Id.

BTB suggests that

the proper sanction is to deny relators their twenty percent share
of the approximately seven million dollar settlement, leaving the
entire settlement amount for the United States.

Id. at pp. 6-7.

Upon order of the Court, the United States responded to BTB’s
motion.

(Docket

No.

44.)

The

United

States

contends

that

relators’ disclosures to El Vocero while the qui tam complaint was
under seal were not appropriate nor authorized by the United
States.

Id.

Nonetheless, the United States does not seek the

imposition of sanctions because (1) relators did not disclose the
existence of the qui tam complaint, (2) the disclosures merely
repeated information that had already been disclosed to the public
in February 2014, nine months before the qui tam complaint was
filed under seal, and (3) the disclosures did not harm the United
States’ investigation.

Id.

The FCA provides that a qui tam complaint “shall be filed in
camera, shall remain under seal for at least 60 days, and shall not
be served on the defendant until the court so orders.”

31 U.S.C.

Civil No. 14-1855 (FAB)

5

§ 3730(b)(2). Congress adopted the mandatory sixty-day seal period
for the following reasons:
(1) to permit the United States to determine whether it
already was investigating the fraud allegations (either
criminally or civilly); (2) to permit the United States
to investigate the allegations to decide whether to
intervene; (3) to prevent an alleged fraudster from being
tipped off about an investigation; and, (4) to protect
the reputation of a defendant in that the defendant is
named in a fraud action brought in the name of the United
States, but the United States has not yet decided whether
to intervene.
Am. Civil Liberties Union v. Holder, 673 F.3d 245, 250 (4th Cir.
2011) (citing S. Rep. No. 99-345, at 24-25 (1986)).
In a First Amendment free speech challenge to the FCA’s seal
provision, the Fourth Circuit Court of Appeals explained that the
provision is narrowly tailored because it “limit[s] the relator
only from publicly discussing the filing of the qui tam complaint”
and because “[n]othing in the FCA prevents the qui tam relator from
disclosing the existence of the fraud.”

Id. at 254; accord United

States ex rel. Rigsby v. State Farm Fire & Cas. Co., 794 F.3d 457,
471 (5th Cir. 2015) (confining analysis of seal violations “to
disclosures

of

the

existence

of

the

suit

“disclosures of the underlying allegations”).

itself”

and

not

This interpretation

comports with the seal requirement’s primary purpose, to give the
United

States

time

to

investigate

the

alleged

fraud

without

“tipping off” the defendant, because public disclosure of alleged
fraud “is far less likely to indicate to the defendant that a
government investigation is underway” than public disclosure of the

Civil No. 14-1855 (FAB)

6

existence of the qui tam complaint.

United States ex rel. Rigsby

v. State Farm Fire & Cas. Co., No. 1:06CV433 LTS-RHW, 2011 WL
8107251, at *7 (S.D. Miss. Jan. 24, 2011), aff’d, 794 F.3d 457 (5th
Cir. 2015).
Disagreeing

with

defendant

BTB

contends

contained

in

a

qui

the

Fourth

that
tam

Circuit

disclosing

complaint,

the

Court
fraud

without

of

allegations

disclosing

complaint’s existence, violates the FCA’s seal provision.
No. 43 at p. 3.)

Appeals,

the

(Docket

The two cases that BTB relies on for this

proposition, however, provide no support because both involve
disclosure of the existence of a qui tam complaint.

See United

States ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242, 244 (9th
Cir. 1995) (finding that relator “clearly violated the [FCA’s] seal
provision . . . by making statements to the Los Angeles Times about
the existence and nature of her qui tam suit”); United States ex
rel. Bibby v. Wells Fargo Home Mortg. Inc., 76 F. Supp. 3d 1399,
1402-04 (N.D. Ga. 2015) (finding that relators violated that FCA’s
seal provision by repeatedly disclosing the existence of the qui
tam suit to third parties).
The Court agrees with the Fourth Circuit Court of Appeals that
the FCA’s seal requirement, 31 U.S.C. § 3730(b)(2), prohibits the
relator only from disclosing the existence of the qui tam action
and does not restrict disclosure of the alleged fraud. Here, there
is no evidence that relators disclosed the filing of the qui tam

Civil No. 14-1855 (FAB)

7

complaint while the complaint was under seal.

Relators therefore

did not violate the FCA’s seal provision.
Even if relators’ disclosures did violate the FCA’s seal
requirement,

sanctions

would

nonetheless

be

unwarranted.

In

deciding whether to sanction a relator for violating the seal
provision, courts consider (1) the harm to the government caused by
the violation, (2) the nature and severity of the violation, and
(3) whether the relator acted in bad faith.
at 470-71; Lujan, 67 F.3d at 246.

See Rigsby, 794 F.3d

Here, (1) the United States

maintains that relators’ disclosures during the seal period did not
harm its investigation; (2) the disclosures were minor because they
merely repeated information that had been disclosed nine months
before the complaint was filed under seal; and (3) there is some
evidence that relators may have acted in bad faith:

they did not

request permission from the government before talking to the media,
and the negative press about defendants’ alleged fraud could have
benefitted relators by persuading defendants to settle the case
quickly.

Thus, although application of the third factor mildly

supports sanctions, the first two factors weigh strongly against
sanctions.

Therefore, even if relators’ disclosures did violate

the FCA’s seal requirement, the Court would nonetheless decline to
impose sanctions.

Civil No. 14-1855 (FAB)

8
III.

CONCLUSION

For the foregoing reasons, defendant BTB’s motion requesting
the imposition of sanctions against relators Betteroads Asphalt,
LLC and Betterecycling Corporation (Docket No. 31) is DENIED.
IT IS SO ORDERED.
San Juan, Puerto Rico, March 7, 2016.
s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE