Audrey Strauss, the United States Attorney for the Southern District of New York, and Brian C. Gallagher, Acting Special Agent in Charge of the U.S. Department of Transportation Office of Inspector General Northeastern Region (“DOT-OIG”), announced today that the United States filed and settled a civil fraud lawsuit against NAUGHTON ENERGY CORPORATION (“NAUGHTON ENERGY”) and two of its owners, its president, MARIETTE NAUGHTON, and her husband, JOSEPH NAUGHTON (collectively, “Defendants”). NAUGHTON ENERGY, a Pennsylvania-based fuel distributor, supplied diesel fuel to vehicles and equipment used in connection with the federally funded New NY Bridge Project (the “NNYB Project”), a construction project to replace New York’s Governor Malcolm Wilson Tappan Zee Bridge. The settlement resolves the United States’ allegations in a False Claims Act lawsuit that Defendants fraudulently caused the submission of false claims by causing the prime contractor on the NNYB Project (the “Prime Contractor”) to misrepresent compliance with Disadvantaged Business Enterprise (“DBE”) rules, which require participation of businesses owned by women and minorities. Specifically, the United States alleged that NAUGHTON ENERGY, MARIETTE NAUGHTON, and JOSEPH NAUGHTON misrepresented to the Prime Contractor that NAUGHTON ENERGY was solely performing millions of dollars of work on the NNYB Project when in fact much of that work was performed by a non-DBE subcontractor. As part of the settlement approved yesterday by U.S. District Judge Valerie E. Caproni, NAUGHTON ENERGY, MARIETTE NAUGHTON, and JOSEPH NAUGHTON admit and accept responsibility for conduct alleged in the Government’s complaint and, pursuant to the terms of a settlement based on their ability to pay, have agreed to pay $692,000 over the next five years to the United States.
Manhattan U.S. Attorney Audrey Strauss said: “DBE participation goals create opportunities for DBEs to work on federally funded construction projects. When DBEs fail to disclose the involvement of non-DBEs in their work, they effectively divert resources to ineligible firms and undermine the DBE program’s goal of creating an environment in which businesses owned by women and minorities can compete fairly for United States Department of Transportation-assisted contracts.”
USDOT-OIG Acting Special Agent in Charge Brian C. Gallagher, said: “The settlement reached today only strengthens our resolve in pursuing those whose spurious actions prevent the legitimate participation of disadvantaged enterprises (DBE) in federally funded transportation projects. While the integrity of DOT’s DBE program was compromised in this instance, we remain steadfast working alongside our law enforcement and prosecutorial partners to ensure funds designated to support disadvantaged small businesses are used for their intended benefit and purpose.”
As alleged in the Complaint, from August 1, 2013, through January 16, 2020, Defendants caused the submission of false claims for payment to the United States Department of Transportation (the “DOT”). Specifically, Defendants represented that NAUGHTON ENERGY, a certified DBE, provided fuel, trucking, and manpower services without assistance from a subcontractor. The Complaint alleges that, from the outset of their involvement on the NNYB Project, Defendants represented that they could deliver diesel fuel to the work site wholly independently. However, Defendants lacked both a fuel truck with sufficient capacity and employees with the necessary union affiliation to effectively make these deliveries. Defendants, therefore, arranged for a non-DBE subcontractor (“Subcontractor Y”) to supply the required fuel delivery truck (the “Project Truck”) and union personnel. In exchange, Defendants shared half of their profits from the NNYB Project with Subcontractor Y. Defendants never disclosed this arrangement to the Prime Contractor, and instead, made concerted efforts to give the false appearance that NAUGHTON ENERGY performed the work unassisted. These efforts included: (1) arranging a sham transaction wherein Subcontractor Y transferred ownership of the Project Truck, worth over $10,000, to NAUGHTON ENERGY for a mere $1; and (2) placing the owner of Subcontractor Y on NAUGHTON ENERGY’s payroll, to give the false impression that NAUGHTON ENERGY employees performed all of the services at issue. Even after the Prime Contractor’s DBE program manager directly inquired as to Subcontractor Y’s involvement, Defendants continued to falsely state that NAUGHTON ENERGY performed its work without any subcontractor involvement.
As part of the settlement, Defendants admitted conduct alleged in the Complaint, including that:
* Prior to beginning work on the project, Defendants contacted a non-DBE company, Subcontractor Y, to assist NAUGHTON ENERGY with providing diesel fuel services to the Prime Contractor.
* NAUGHTON ENERGY used Subcontractor Y to provide diesel fuel services on the project because: (1) absent an agreement with Subcontractor Y regarding the use of its truck, NAUGHTON ENERGY did not have a fuel delivery truck with sufficient capacity to effectively provide diesel fuel services for the project; and (2) NAUGHTON ENERGY lacked the affiliation with the requisite union necessary to have its own staff work on the project
* Defendants did not disclose this arrangement to the Prime Contractor. Instead, Defendants took the following actions that made it appear that no subcontractor was involved in providing NAUGHTON ENERGY’s services: (1) Defendants negotiated with Subcontractor Y to transfer title of the Project Truck to NAUGHTON ENERGY for $1; and (2) Defendants placed an owner of Subcontractor Y on NAUGHTON ENERGY’s payroll.
* Defendants failed to disclose Subcontractor Y’s involvement in the work performed on the project.
Ms. Strauss praised the outstanding investigative work of DOT-OIG. She also thanked the New York State Office of the Inspector General for its assistance. This case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorney Jessica Jean Hu is in charge of the case.
James Margolin, Nicholas Biase