Court Holds for Plaintiffs in Case Involving Reconditioned Helmets and False Claims Act

Dec 13, 2013

A federal judge from the Eastern District of Pennsylvania has ruled that is premature to grant a motion for summary judgment introduced by the owners of a company that sold and refurbished helmets to schools, who stand accused on making fraudulent claims about its work to the schools and other entities that it sold the refurbished helmets to.
 
The defendants, Alan Abeshaus, Eric Abeshaus, Sandra Abeshaus and Mitchell Kurlander, were indicted in May of 2011. The New York Times summarized their actions as follows: “an elaborate, decade-long scheme by Circle System Group of Easton, Pa., to bill for work that was never done, inflate prices, collect twice for the same jobs and submit bogus contract bids. The indictment said the company curried favor with school officials by lavishing gifts like computers, televisions and golf outings on them — and recouped that money by charging the schools for fake expenses.”
 
On the civil side, Gerry Dale, a former production manager for CSG, initiated a qui tam action under the federal False Claims Act (FCA), 31 U.S.C. § 3730.8 on October 20, 2006. Six years later, the defendants moved to dismiss the claim, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.
 
By way of background, the court noted that CSG was in the business of reconditioning athletic equipment. It was owned by former defendant Schutt Holdings, Inc., which also owned the outstanding shares of stock of former defendant Schutt Sports, Inc.
 
The reconditioning of athletic equipment is influenced by the National Operating Committee on Standards for Athletic Equipment (NOCSAE), a nonprofit corporation formed in 1969 in response to a need for a performance test standard for football helmets. NOCSAE has developed helmet standards designed to reduce head injuries by establishing testing requirements for football helmets and other athletic equipment.
 
Manufacturers test their own helmets as they are produced and licensed re-conditioners test used helmets to the original standard applicable when the helmet is new. In order to comply with NOCSAE standards, re-conditioners must test two percent of each style of helmet from each customer after it has been reconditioned and before it has been recertified.
 
Once a helmet passes the testing standards set forth by NOCSAE, the NOCSAE seal is affixed to a helmet to certify that the testing has been performed and the helmets meet the appropriate NOCSAE standards. However, helmets that do not meet NOCSAE’s standards are rejected or marked unfit for use.
 
Between 2001 and 2008, at the direction of the defendants, the Schutt Corporate Entities contracted to recondition athletic equipment with federally funded schools and with public school districts in 11 different states and the District of Columbia.
 
Specifically, with regards to federally funded schools, Schutt Corporate Entities contracted to recondition football helmets from 30 schools administered by the Department of Defense Education Activity (DoDEA). Between 2001 and 2008 the Schutt Corporate Entities reconditioned an average of anywhere from 9 to 152 football helmets annually from each school, depending on the particular DoDEA school.
 
In soliciting bids from contractors to recondition athletic equipment, DoDEA required that reconditioning services be performed “to ensure that all reconditioned helmets and shoulder pads provided under this contract are certified for use as prescribed by the NOCSAE.”
 
In addition to contracting with the DoDEA schools, the Schutt Corporate Entities contracted to recondition athletic equipment with public school districts in Delaware, the District of Columbia, Florida, Illinois, Indiana, Louisiana, Michigan, New York, Tennessee, Texas, Virginia and New Jersey.
 
Each of the public school districts received Basic Education Funding provided by the state. This funding was used in part to repair and recondition athletic equipment. The school districts mandated that, when soliciting bid offers for reconditioning athletic equipment, football helmets be recertified pursuant to NOCSAE standards.
 
“Despite the requirements from the DoDEA schools and various public school districts, the Schutt Corporate Entities did not recondition football helmets in compliance with NOCSAE,” wrote the court, citing the complaint. “Specifically, the defendants did not test the minimum two percent of each style of helmet from each customer after the helmets were reconditioned. Additionally, contrary to NOCSAE requirements, the defendants utilized equipment, which was not made by the original manufacturer.
 
“Nevertheless, the defendants affixed the NOCSAE seal to the reconditioned helmets, thereby certifying that that the helmet met NOCSAE standards. Moreover, the defendants falsified their reports and test results to NOCSAE.” They also “did not obtain contracts with the schools through standard bidding practices. Rather, in at least some instances, defendants used ‘phantom bids’ to secure the contracts with the schools.
 
“Specifically, the defendants created fictitious companies which the defendants used to submit competing bids to individual schools and school districts. Pursuant to this scheme, the defendants would submit two phantom bids from fictitious companies and one real bid from the Schutt Corporate Entities. This enabled the Schutt Corporate Entities to appear to be the low bidder in a competitive bidding process.”
 
Turning back to the motion for summary judgment, the court recounted the defendants’ argument that the claim was “not pled with sufficient specificity.”
 
Among the defendants’ other arguments was that:
 
The plaintiffs “have failed to state a claim under the False Claims Act because the federal schools did not rely upon NOCSAE certification when awarding contracts and therefore the defendants’ purported misrepresentations were not material to being awarded various contracts with federal schools.”
 
 
“NOCSAE standards do not mandate that two percent of all helmets be tested, and therefore placing the NOCSAE seal on reconditioned helmets was not improper, even if the defendants did not test two percent of the football helmets after they were reconditioned.”
 
 
The court began its analysis by reviewing the FCA, which prohibits the submission of false or fraudulent claims for payment to the United States.
 
As a means of enforcement, the FCA authorizes qui tam actions, by which a private individual, known as a relator, may bring a lawsuit on behalf of the government in exchange for the right to retain a portion of any resulting damages award. Foglia v. Renal Ventures Management, LLC., 830 F.Supp.2d 8, 15 (D.N.J. Nov. 23, 2011) citing Schindler Elevator Corporation v. U.S. ex rel. Kirk, U.S., 131 S.Ct. 1885, 1889, 179 L.Ed.2d 825 (2011).
 
“Drawing reasonable inferences in favor of plaintiffs, as I am required to do under the foregoing standard of review, I conclude that plaintiffs have provided sufficient factual allegations to state a claim under the FCA,” wrote the court.
 
Attorneys of Record: (for plaintiffs) Rudolph Garcia, Esquire, Joseph R. Loverdi, Esquire. (for defendants) Alan Abeshaus, Eric, Abeshaus, and Mitchell Kurlander.
 
The opinion can be viewed at: http://www.paed.uscourts.gov/documents/opinions/13d0809p.pdf


 

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