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UNITED STATES EX REL. HARTIGAN v. PALUMBO BROS.

June 5, 1992

UNITED STATES OF AMERICA ex rel. NEIL F. HARTIGAN, Attorney General of the State of Illinois and the STATE OF ILLINOIS, Plaintiffs,
v.
PALUMBO BROS., INC., et al., Defendants.


MAROVICH


The opinion of the court was delivered by: GEORGE M. MAROVICH

MEMORANDUM OPINION AND ORDER

 The qui tam plaintiffs, Neil F. Hartigan, former Attorney General for the State of Illinois and the State of Illinois (the "plaintiffs" or "Illinois"), filed a fifteen-count complaint against twenty-eight individuals and entities involved in the construction industry in the Midwest (the "defendants"). The complaint was filed pursuant to the False Claims Act, 31 U.S.C. § 3729 ("FCA"). The plaintiffs seek recovery of damages, penalties, interest, fees and costs on behalf of themselves and as realtors for the United States of America. The defendants have filed ten motions to dismiss pursuant to Fed. R. Civ. P. ("Rule") 12(b)(1) and (6). Each motion is based on a different legal and/or factual argument and each is adopted, in whole or in part, by the remaining defendants. For the following reasons, we dismiss Counts I, II and XI-XVII pursuant to Rule 12(b)(1) and abstain from addressing the remaining counts.

 BACKGROUND

 Plaintiffs seek to recover for alleged false statements and claims made by contractors and subcontractors, including purported minority and women business enterprises, as well as affiliated corporations and individuals. This case concerns projects funded, in whole or in part, by the United States Department of Transportation ("USDOT"). The false documents were submitted to the following USDOT grantees: the Illinois Department of Transportation ("IDOT"), the City of Chicago ("Chicago"), the Wisconsin Department of Transportation ("WDOT"), the Indiana Department of Highways ("INDOH"), and the Minnesota Department of Transportation ("MDOT").

 Count I of the complaint concerns alleged false payroll and equal employment opportunity reports submitted to the IDOT in connection with an Eisenhower Expressway resurfacing job. The prime contracts on the Eisenhower job were defendants Robert R. Anderson Co., Palumbo Bros., Milburn Brothers, Inc., and Allied Asphalt Paving Company.

 Count II also concerns the same Eisenhower Expressway contract. The above four prime contractors and one of their purported minority business enterprise ("MBE") subcontractors, Lo-Mar Contracting Corporation ("Lo-Mar"), significantly overstated, in written documentation to IDOT, the amount the prime contractors paid Lo-Mar for its work on the job.

 Count III concerns alleged false payroll reports submitted by Lo-Mar to IDOT on a Lincoln Highway project in which Robert R. Anderson Company was the prime contractor and Lo-Mar was a purported MBE subcontractor. Count IV concerns an alleged overstatement to IDOT, a grantee of USDOT, of the net amount paid by Robert R. Anderson to Lo-Mar in connection with the same highway project.

 Count V concerns the final payment agreement for a different Eisenhower Expressway job, which falsely states that Lo-Mar obtained and put in place concrete and reinforcing bars. Count V is brought against Lo-Mar and prime contractors Robert R. Anderson Co., Palumbo Bros., Milburn Brothers, Inc., and Allied Asphalt Paving Company.

 Count VI concerns Palumbo Bros., Inc.'s alleged demand that one of its trucking subcontractors, Coke Contracting Co., Inc. ("Coke"), falsify a series of billing invoices before Palumbo Bros., Inc. would pay Coke. The alleged falsification involved the Eisenhower Expressway project.

 Count VII concerns alleged falsifications in connection with Lo-Mar's MBE certification and recertification applications to the IDOT. The falsifications allowed Lo-Mar to receive funds originally appropriated by Congress in connection with IDOT projects.

 Count VIII concerns an August 5, 1988 women's business enterprise ("WBE") certification application submitted by M & D Constructors, Inc. to the IDOT. According to the complaint, the application falsely stated that its sole owner and officer, Deborah Melesio-Piekarz, had never been an officer of a firm which had been denied MBE certification.

 Counts IX and X concern alleged false December, 1987 MBE certification applications of Highway Safety Contracting Corporation. The applications omitted several prior certification decisions denying MBE status for firms having common ownership. As a result of the false certification applications, Highway Safety received funds originally appropriated by Congress in connection with a series of at least five IDOT projects.

 Count XI concerns Highway Safety's alleged false MBE certification application to the WDOT. As a result of that false application, Highway Safety obtained federal funds as a purported MBE on at least two WDOT projects.

 Counts XII-XV concern Hi-Gate Erectors, Inc.'s allegedly false applications seeking MBE from the IDOT, Chicago, the INDOH, and the MDOT. As a result of the false applications, Hi-Gate Erectors received federal funds as a purported MBE on a series of at least sixty-one projects funded by the United States.

 Counts XVI-XXII were added on April 4, 1992 after the court allowed Illinois to amend its complaint to add defendants' sureties.

 Although the defendants have raised a number of arguments in their motions to dismiss the complaint, we will address only two: whether Illinois has subject matter jurisdiction to bring this suit as qui tam plaintiffs; and whether the court should dismiss or, alternatively, stay these proceedings under the Colorado River doctrine.

 1. Subject Matter Jurisdiction

 A. 1986 Amendments and Retroactivity

 In order to determine whether the court has subject matter jurisdiction over this action, we must first decide whether the 1986 Amendments to the FCA should be applied retroactively or prospectively. If the text of the statute expresses a clear indication of retroactive intent, or if the legislative history clarifies whether or not the statute was intended to be applied retroactively or prospectively, then the legislative intent governs. Unfortunately, the 1986 Amendments to the FCA are silent on the issue of retroactivity. See United States v. Murphy, 937 F.2d 1032 (6th Cir. 1991). Further, the legislative history does not clearly indicate whether or not the Amendments were intended to be applied retroactively. Id. Therefore, we look to the Supreme Court for guidance.

 The Supreme Court has not yet settled the question of whether, absent clear legislative intent, a congressional enactment should be applied retroactively or prospectively. In Bradley v. School Bd., 416 U.S. 696, 40 L. Ed. 2d 476, 94 S. Ct. 2006 (1974), the court articulated the proposition that "a court is to apply the law in effect at the time it renders its decision unless doing so would result in manifest injustice or there is a statutory direction or legislative history to the contrary." Id. at 711. Since Bradley, however, the Court has reconsidered its position of the issue of retroactivity. In Bennett v. New Jersey, 470 U.S. 632, 84 L. Ed. 2d 572, 105 S. Ct. 1555 (1985), the Court made clear that statutes affecting rights and liabilities are presumed to have only prospective application. More recently, in Bowen v. Georgetown University Hospital, 488 U.S. 204, 102 L. Ed. 2d 493, 109 S. Ct. 468 (1988), the Court reiterated the longstanding principle that "retroactivity is not favored in the law. . . . [and] congressional enactments . . . will not be construed to have retroactive effect unless their language requires this result." Id. at 208; see also Vogel v. Cincinnati, 959 F.2d 594 (6th Cir. 1992).

 The Court's holding in Bowen is in conflict with the Court's earlier position in Bradley. The "apparent tension" between these two cases and their progeny was recognized by the Court in Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. 827, 110 S. Ct. 1570, 108 L. Ed. 2d 842 (1990). The Court, however, refused to resolve the conflict since it concluded that, in Kaiser, the evidence of legislative intent was clear; and "where intent is clear, it governs." See Vogel, No. 91-3474, slip op. at 5.

 The Seventh Circuit has recently clarified its position on the issue of retroactivity. In Mozee v. American Commercial Marine Service, Co., 963 F.2d 929 (7th Cir. 1992), the court held that the substantive, procedural and damage provisions of the 1991 Civil Rights Act do not apply retroactively in suits that were pending on appeal at the time of enactment. In reaching its conclusion, the court endorsed the general rule in Bowen that a presumption of prospective application should be accorded to substantive provisions at and stage of the proceedings. Id. at 13.

 Only one appellate court has directly addressed the issue of the retroactive effect of the 1986 Amendments to the FCA. In Murphy, 937 F.2d at 1032, the Sixth Circuit held that the 1986 Amendments were to be applied prospectively because the "amendments affected substantive rights and liabilities." After discussing the "tension" between Bradley and Bowen, the court followed Bowen and held that the 1986 Amendments should be applied prospectively only. As the only appellate court decision on point, Murphy is entitled to substantial weight. As the Seventh Circuit noted in Colby v. J.C. Penney Co., 811 F.2d 1119, 1123 (7th Cir. 1987):

 We have an intermediate obligation to our sister federal courts of appeals. Bearing in mind the interest in maintaining a reasonable uniformity of federal law and in sparing the Supreme Court the burden of taking cases merely to resolve conflicts between circuits, we give most respectful consideration to the decisions of the other courts of appeals and follow them whenever we can. Our district judges should, of course, do likewise with regard to such decisions. . . .

 Therefore, we conclude that the 1986 Amendments to the FCA have only prospective application and will not be applied to claims that were completed before October, 1986, the date when the Amendments took effect. A claim is not complete before the "last date when the Government paid any money on a particular claim." United States v. Klein, 230 F. Supp. 426, 442 (W.D. Pa. 1964) aff'd, 356 F.2d 983 (3d Cir. 1966).

 The complaint contains fifteen counts. Counts I, II, and XI-XVII all allege fraud involving construction contracts entered into during the early 1980's. There are no allegations in the complaint or proof in the attached exhibits that any federal funds at issue in these counts were paid out to the defendants after October, 1986. Therefore, we conclude that these claims were "completed" before the ...


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