Seikel et al v. Alvarez et al

Filing 203

MEMORANDUM OPINION AND ORDER GRANTING MOTIONS TO DISMISS 87 , 89 . This action is DISMISSED WITH PREJUDICE and STRICKEN from the Court's active docket. Motion to compel 142 is Terminated. Signed by Chief District Judge Thomas S Kleeh on 3/27/2024. (mas)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
JOSEPH SEIKEL and
TERENCE SEIKEL,
Plaintiffs,
v.

CRIMINAL NO. 1:23-CV-01
(KLEEH)

DAVID B. ALVAREZ,
APPLIED CONSTRUCTION SOLUTIONS, INC.,
ENERGY TRANSPORTATION, LLC,
ENERGY RESOURCE GROUP, LLC,
ET360, LLC,
BEAR CONTRACTING, LLC,
BEAR UTILITIES, LLC,
JASON P. HENDERSON, and
JOHN DOES NOS. 1-50,
Defendants.
MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
Pending before the Court are two motions to dismiss the
amended complaint.

For the reasons discussed herein, the motions

are GRANTED.
I.
On

October

22,

PROCEDURAL BACKGROUND

2020,

Joseph

Seikel

and

Terence

Seikel

(together, the “Seikels”), on behalf of the United States of
America, initiated this qui tam action in the United States
District Court for the Eastern District of Pennsylvania against
Defendants David B. Alvarez, Applied Construction Solutions, Inc.,
Energy Transportation LLC, Energy Resource Group, LLC, ET360, LLC,

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
Jason P. Henderson, Bear Contracting, LLC, Bear Utilities, LLC,
and John Does Nos. 1-50, Fictitious Names.
Defendants Jason P. Henderson, Energy Resource Group, LLC,
and ET360 will herein be referred to as the “Henderson Defendants.”
Defendants David B. Alvarez, Applied Construction Solutions, Inc.,
and Energy Transportation, LLC will herein be referred to as the
“Alvarez Defendants.”

Shortly after the complaint was filed, the

Department of Justice began investigating the Seikels’ claims.

On

November 9, 2022, the Alvarez Defendants filed a motion to transfer
venue, which was granted.

The case was then transferred to the

Northern District of West Virginia.
On February 28, 2023, the Henderson Defendants and the Alvarez
Defendants filed motions to dismiss.

The parties then consented

to the filing of an amended complaint.

On April 4, 2023, the

Seikels filed a motion for leave to file the amended complaint
under seal.

The Court denied that motion.

The amended complaint

was then filed, unsealed, on April 12, 2023, and asserts the
following causes of action:


(Count One) Violation of False Claims Act, 31
U.S.C. § 3729(a)(1)(A);



(Count Two) Violation of False Claims Act, 31
U.S.C. § 3729(a)(1)(B);



(Count Three) Violation of False Claims Act,
31 U.S.C. § 3729(a)(1)(C); and
2

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]


(Count Four) Violation of False Claims Act, 31
U.S.C. § 3729(a)(1)(G).

On November 28, 2023, the Court unsealed the United States’
notice of election to decline intervention, which had previously
been filed under seal on April 7, 2023.

Currently pending are two

motions to dismiss the amended complaint: one by the Henderson
Defendants and one by the Alvarez Defendants.1
together will be referred to as “Defendants.”

These groups

The Seikels, after

obtaining leave of the Court, filed an omnibus response to the
motions.

Each group of defendants filed a reply.
II.

ALLEGATIONS IN THE AMENDED COMPLAINT

The Seikels allege that Defendants engaged in fraud in their
applications for funds pursuant to the Paycheck Protection Program
(“PPP”).2

Specifically, the Seikels state that with limited

exceptions, only small businesses with 500 or fewer employees are
eligible borrowers in the PPP.

Am. Compl., ECF No. 80, at ¶ 4.

They allege that Defendants are affiliated with one another, to
the extent that they have a combined total of at least 764

The Alvarez Defendants filed a memorandum in support but did not
file an actual motion. The Court construes the memorandum [ECF
No. 89] as a motion and accompanying memorandum.
2 The PPP was created pursuant to the Coronavirus Aid, Relief, and
Economic Security (“CARES”) Act.
It was intended to provide
financial relief for small businesses during the COVID-19
pandemic.
1

3

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
employees.

Id. ¶ 5.

Still, Defendants individually applied for

PPP loans, receiving a combined total of $13,849,170.00 from the
federal government.

Id.

Defendants, as the Seikels argue, provide services in the oil
and gas industry and are all controlled and/or managed by Defendant
David B. Alvarez.

Id. ¶¶ 6, 7.

Essentially, the Seikels argue

that Defendants operated as one interconnected company.

Id. ¶ 7.

In support, Plaintiff cites information about the sharing of
principle office addresses and mailing addresses.
¶¶ 77, 82, 86, 90, 95, 99.

They also cite overlap between company

leadership and organization.
95, 99, 103, 104–26.

See, e.g., id.

See, e.g., id. ¶¶ 78, 82, 86, 91,

They allege that Defendants share resources,

personnel, and finances and that they cross-sell their various
services.

See, e.g., id. ¶¶ 127–62.

They further allege that

Alvarez had plans to shutter one of the businesses at the time
when he applied for the funds.

Id. ¶ 167.

III. STANDARD OF REVIEW
Rule 12(b)(6) of the Federal Rules of Civil Procedure allows
a defendant to move for dismissal upon the ground that a complaint
does not “state a claim upon which relief can be granted.”

In

ruling on a 12(b)(6) motion to dismiss, a court “must accept as
true all of the factual allegations contained in the complaint.”
Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir. 2007)
4

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
(quoting Erickson v. Pardus, 551 U.S. 89, 94 (2007)).

A court is

“not bound to accept as true a legal conclusion couched as a
factual allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986).
A court should dismiss a complaint if it does not contain
“enough facts to state a claim to relief that is plausible on its
face.”

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).

Plausibility exists “when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. 662, 678 (2009).

Ashcroft v.

A motion to dismiss “does not

resolve contests surrounding the facts, the merits of a claim, or
the applicability of defenses.”
Martin,

980

appropriate

F.2d
only

942,
if

“it

952

(4th

appears

Republican Party of N.C. v.
Cir.
to

be

1992).
a

Dismissal

certainty

that

is
the

plaintiff would be entitled to no relief under any state of facts
which could be proven in support of its claim.”

Johnson v.

Mueller, 415 F.2d 354, 355 (4th Cir. 1969).
IV.

DISCUSSION

First, the Court finds that this action must be dismissed
because it is subject to the public disclosure bar.

Second, in

the alternative, the action must be dismissed because the Seikels
have failed to plead fraud with sufficient particularity.

5

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
A.

The action must be dismissed pursuant to the public
disclosure bar.

Defendants first argue that the Court should dismiss the
amended complaint for lack of subject matter jurisdiction because
the Seikels are not qualified to bring this qui tam action as
relators under the False Claims Act (“FCA”).

They argue that the

public disclosure bar mandates dismissal because the allegations
in the amended complaint have been publicly disclosed, and the
Seikels are not original sources or insiders.

The Court agrees

that the action must be dismissed.
The FCA “imposes civil liability on any person who ‘knowingly
presents,

or

causes

to

be

presented,

[to

the

United

States

government] a false or fraudulent claim for payment or approval’
or ‘knowingly makes, uses, or causes to be made or used, a false
record or statement to get a false or fraudulent claim paid or
approved by the Government.’”

United States ex rel. Wilson v.

Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008)
(citing 31 U.S.C. § 3729(a)).

It authorizes a private person to

bring a claim for a violation of Section 3729 on behalf of that
person and the United States.

See 31 U.S.C. § 3730(b).

In what

is known as the “public disclosure bar,” however, the FCA provides
certain limitations:
(4)(A) The court shall dismiss an action or
claim under this section, unless opposed by
6

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
the Government, if substantially the same
allegations or transactions as alleged in the
action or claim were publicly disclosed —
(i) in a Federal criminal, civil, or
administrative hearing in which the Government
or its agent is a party;
(ii)
in
a
congressional,
Government
Accountability Office, or other Federal
report, hearing, audit, or investigation; or
(iii) from the news media,
unless the action is brought by the Attorney
General or the person bringing the action is
an original source of the information.
(B) For purposes of this paragraph, “original
source” means an individual who either (i)
prior to a public disclosure under subsection
(e)(4)(a), has voluntarily disclosed to the
Government
the
information
on
which
allegations or transactions in a claim are
based, or (2) who has knowledge that is
independent of and materially adds to the
publicly
disclosed
allegations
or
transactions, and who has voluntarily provided
the information to the Government before
filing an action under this section.
Id. § 3730(e)(4).

“Once a defendant files a motion to dismiss

based on the public-disclosure bar, the relator bears the burden
of proving by a preponderance of the evidence that the bar does
not apply.”

United States ex rel. Ahumada v. NISH, 756 F.3d 268,

274 (4th Cir. 2014) (citation omitted).
The public disclosure bar was previously a jurisdictional
bar.

See 31 U.S.C. § 3730(e)(4)(A) (1994) (“No court shall have
7

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
jurisdiction over an action under this section based upon the
public disclosure of allegations or transactions . . . .”).
2010,

Congress

amended

the

statute

and

eliminated

In
the

jurisdiction-removing language, making the public disclosure bar
“a

grounds

for

dismissal — effectively,

defense — rather than a jurisdictional bar.”

an

affirmative

United States ex

rel. Beauchamp v. Academi Training Ctr., 816 F.3d 37, 40 (4th Cir.
2016).

Accordingly, the Court is guided in its analysis by Rule

12(b)(6) as opposed to Rule 12(b)(1).
In analyzing whether the public disclosure bar should apply,
the Court assesses “(1) if there was a public disclosure, (2) if
the relator’s allegations were ‘based upon’ the public disclosure,
and, if so, (3) whether the relator is nonetheless ‘entitled to
original source status’ as ‘an individual who has direct and
independent

knowledge

of

the

allegations . . . are based[.]”

information

on

which

the

United States ex rel. Black v.

Health & Hosp. Corp. of Marion Cty., 494 F. App’x 285, 293 (4th
Cir.

2012)

(citations

omitted).

Importantly,

“[t]he

public

disclosure bar ‘encompasses actions even partly based upon prior
public disclosures.’”

United States ex rel. Jones v. Collegiate

Funding Servs., Inc., 469 F. App’x 244, 254 (4th Cir. 2012)
(citation omitted).

“Courts have unanimously construed the term

‘public disclosure’ to include websites and online articles” and
8

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
have construed “news media” to include newspapers and publicly
available websites.
omitted).
he

Beauchamp, 816 F.3d at 43 n.6 (citations

For a relator to be entitled to original source status,

must

“allege

specific

conclusions — showing
information.

exactly

facts — as
how

and

opposed

when”

he

to

mere

obtained

the

Ahumada, 756 F.3d at 276 (citation omitted).

Here, prior public disclosures form the basis of the Seikels’
allegations, at least in part.
are

affiliated

with

one

The Seikels allege that Defendants
another

individually, for PPP loans.

and

unlawfully

applied,

In support of this allegation, the

Seikels rely upon facts that were already available in public
sources.

For example, they cite to and rely upon the addresses,

ownership, and management of Defendants, much of which is publicly
available

on

the

West

Virginia

Secretary

of

State

website.

See Am. Compl., ECF No. 80, at ¶¶ 27, 29, 31, 33, 35,

36, 37, 77, 78, 82, 86, 90, 91, 95, 99, 103, 104–26.

(“WVSOS”)

On the WVSOS

website, the public can research domestic business organizations
and

learn

each

business’s

office

address,

mailing

members, owners, organization year, and purpose.
STATE

MAC

WARNER,

stated

See SECRETARY

https://sos.wv.gov/Pages/default.aspx

visited March 27, 2024).
expressly

address,

in

the

OF

(last

The Seikels’ reliance on these facts is
amended

complaint:

“The

affiliation

between and among the Defendants is evidenced by how the entities
9

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
were originally formed: by the same individuals, and at many of
the same addresses.”

Am. Comp., ECF No. 80, at ¶ 74.

In addition, the public has access to information about who
applied for and received PPP loans.

On a public website, anyone

can learn the location of an organization that applied for a loan,
the organization’s industry, the lender of the loan, the date the
loan was approved, the loan amount, and the loan status.

See

Tracking PPP: Search Every Company Approved for Federal Loans,
PROPUBLICA,

https://projects.propublica.org/coronavirus/bailouts/

(last visited March 27, 2024).

Further, the Seikels cite to and

rely upon Defendants’ website and marketing materials.
Compl., ECF No. 80, at ¶¶ 74, 120.

See Am.

The Seikels’ reliance on

publicly available information, even if it only forms part of their
claims, triggers application of the public disclosure bar.

See

Jones, 469 F. App’x at 254 (“The public disclosure bar ‘encompasses
actions even partly based upon prior public disclosures.’”). Thus,
there were public disclosures forming the basis of the Seikels’
allegations, at least in part.
Additionally, the Seikels are not “nonetheless entitled to
original source status.”
marks omitted).

Black, 494 F. App’x at 293 (quotation

“In order to achieve original source status, [the

Seikels] must prove beyond a preponderance of the evidence that
[they] ha[ve] ‘direct and independent knowledge of the information
10

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
on

which

[the]

allegations

are

based

and

ha[ve]

provided the information to the Government[.]”

voluntarily

Id. at 295.

“A

relator’s knowledge is ‘direct’ if ‘he acquired it through his own
efforts, without an intervening agency,’ and it is ‘independent’
if ‘the knowledge is not dependent on public disclosure.’”
295–96 (citation omitted).
original

source

status,

Id. at

Again, for a relator to be entitled to
he

must

“allege

specific

facts — as

opposed to mere conclusions — showing exactly how and when” he
obtained the information.

Ahumada, 756 F.3d at 276 (citation

omitted).
Here, the Seikels have not met their burden to prove that
they are entitled to original source status. The amended complaint
does not set forth specific facts detailing how and when all of
the information forming the basis of the allegations was obtained.
Even if it did, the information does not “materially add[]” to the
information

available

§ 3730(e)(4)(B).

in

public

sources.

See

31

U.S.C.

Accordingly, the Seikels are not entitled to

original source status.

After weighing the appropriate factors,

it is clear to the Court that the public disclosure bar applies.
Accordingly, Defendants’ motions to dismiss are GRANTED on this
basis.

11

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
B.

In the alternative, the action must be dismissed because
the Seikels have failed to plead fraud with sufficient
particularity.

Defendants argue that even if the case is not dismissed
pursuant to the public disclosure bar, it should be dismissed
because the Seikels have failed to plead fraud with particularity.
The Court agrees.
“In alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.”
Fed. R. Civ. P. 9(b). “To satisfy Rule 9(b), a plaintiff asserting
a claim under the [FCA] ‘must, at a minimum, describe the time,
place, and contents of the false representations, as well as the
identity of the person making the misrepresentations and what he
obtained.’”

United States ex rel. Nathan v. Takeda Pharms. N.

Am., Inc., 707 F.3d 451, 456–57 (4th Cir. 2013) (citation omitted).
Here, the amended complaint does not state the date on which
each PPP application was submitted, much less the time.
amended

complaint

fails

to

plead

fraud

with

The

sufficient

particularity, and Defendants’ motions to dismiss are additionally
GRANTED for this reason.

12

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
C.

The Seikels’ request for leave to amend the amended
complaint is denied.

Defendants have asked the Court not to allow the Seikels to
amend their complaint again.

The Seikels request, in their

response, another opportunity to amend.
Under Rule 15(a)(2) of the Federal Rules of Civil Procedure,
the Court should “freely grant leave when justice so requires.”
Leave to amend “should be denied only when the amendment would be
prejudicial to the opposing party, there has been bad faith on the
part of the moving party, or the amendment would have been futile.”
Sciolino v. Newport News, 480 F.3d 642, 651 (4th Cir. 2007).
This action was initiated in 2020.

In Defendants’ motions to

dismiss the original complaint, they raised the same issues with
respect to the public disclosure bar and the failure to plead fraud
with particularity.

The Seikels have already had an opportunity

to rectify any perceived pleading deficiencies on these issues.
Further, this Court’s local rules provide that “[a]ny party filing
a motion to amend a pleading that requires leave of court to file
shall attach to that motion a signed copy of the proposed amended
pleading.”
amend

is

LR Civ P 15.01.
not

properly

Accordingly, the Seikels’ request to

raised,

and

regardless,

it

would

be

prejudicial to Defendants to allow the Seikels to amend their

13

SEIKEL V. ALVAREZ

1:23-CV-01

MEMORANDUM OPINION AND ORDER
GRANTING MOTIONS TO DISMISS [ECF NOS. 87, 89]
complaint another time.

Justice does not require leave to amend

in this instance, and the request to amend is DENIED.
V.

CONCLUSION

For the reasons discussed above, the motions to dismiss are
GRANTED [ECF Nos. 87, 89]. This action is DISMISSED WITH PREJUDICE
and STRICKEN from the Court’s active docket.

The Clerk shall

TERMINATE the pending motion to compel [ECF No. 142].
It is so ORDERED.
The Clerk is DIRECTED to enter a separate judgment order and
to transmit copies of this Memorandum Opinion and Order to counsel
of record.
DATED: March 27, 2024

____________________________
THOMAS S. KLEEH, CHIEF JUDGE
NORTHERN DISTRICT OF WEST VIRGINIA

14