Relator can amend qui tam suit against Peco Energy Co., others, judge rules

By Jon Campisi | Nov 6, 2013

A federal judge in Philadelphia has allowed a relator who brought a qui

tam suit against a Pennsylvania public utility to amend his complaint, simultaneously denying the defendant’s motion to dismiss the second amended complaint.

U.S. District Judge R. Barclay Surrick, of the Eastern District of Pennsylvania, granted a motion by Lothar E.S. Budike, Sr., to amend a complaint he brought on behalf of the U.S. Government against Peco Energy Co.

The lawsuit, which was filed under the federal False Claims Act, alleges that the defendant engaged in widespread improper billing practices with regard to providing electricity to certain United States naval vessels.

The co-defendants in the case include the Philadelphia Regional Port Authority and General Dynamics American Overseas Marine, or AMSEA.

In his Oct. 3, 2007, qui tam action, relator Budike alleged that Peco has submitted false and fraudulent claims and cost reports to the U.S. Navy to obtain “hundreds of thousands of dollars in overpayment for electricity and related services.”

The relator filed his first amended complaint in the spring of 2011, which named the two additional defendants and contained additional counts, including retaliation and discrimination under the False Claims Act, as well as retaliatory discharge of Budike.

The additional claims were ultimately tossed out after the defendants filed their motions to dismiss.

The general False Claims Act count against PRPA was dismissed with prejudice, although it was dismissed without prejudice as to AMSEA, court records show.

The judge overseeing the case gave Budike the opportunity to cure the apparent “deficiencies” in the complaint with respect to this claim against AMSEA.

Budike filed his second amended complaint on Nov. 20, 2012, and AMSEA again sought dismissal about a month later.

The relator then filed a motion for leave to amend his second amended complaint.

The background of the case involves a contract between PRPA and the United States by which PRPA agrees to provide auxiliary support services, including electrical power, to two “Large, Medium-Speed, Roll-On/Roll-Off,” or LMSR naval vessels, at the Tioga Marine Terminal in Philadelphia, the record shows.

The U.S. Government agreed to procure electric power from PRPA, which agreed to subcontract electric services “at the most competitive rates obtainable,” the judicial memorandum states.

Defendant AMSEA, which is a ship operating segment of General Dynamics Marine Systems, operates and manages seven LMSR vessels for the United States, the record shows.

In late April 2003, the court record states, PRPA entered into a contract with Peco Energy to provide electrical power to the vessels.

The public utility began generating and submitting monthly bills to PRPA in October of that year.

Budike, who is a federally licensed U.S. Marine Chief Engineer, and president of A-Valey Engineers Inc., which bills itself as a multi-disciplinary engineering and consulting firm, was hired by PRPA in 2005 to provide on-call engineering services at the Philadelphia facility.

Budike’s firm ended up conducting a comprehensive energy audit over concerns that Peco was submitting inflated bills for electric power being supplied to the LMSR vessels.

As part of its investigation, AVE had installed its own meter and monitoring equipment throughout the vessels.

In his subsequent complaint, Budike alleged that the defendants had engaged in a “pattern of deception, and conspired with each other to fraudulently provide accounting for electric power supply purportedly used in the performance of a government program and contract that was billed to the United States and paid by the United States.”

In the proposed third amended complaint, Budike included additional facts about AMSEA’s interaction with Peco and PRPA.

Lawyers for AMSEA had argued that allowing the relator to amend his complaint would be futile because Budike didn’t sufficiently allege AMSEA and Peco entered into an agreement to defraud, nor did he allege any such agreement was for the purpose of defrauding the United States by getting a false or fraudulent claim allowed or paid.

Surrick, the judge, disagreed, writing that a denial of leave to amend can be based on undue delay, prejudice, bad faith or futility, and despite AMSEA’s contentions, the relator’s motion doesn’t come after undue delay.

“Moreover, AMSEA has not established how it would be prejudiced by allowing Relator to amend the Second Amended Complaint but instead summarily states that it ‘is prejudiced in its ability to defend the action by delay occasioned by Relator’s repeated failed pleadings,’” the judicial memorandum states. “AMSEA does not specifically show how it will be ‘deprived of the opportunity to present facts or evidence which it would have offered’ had the amendment been filed earlier.”

Surrick also wrote that it does not appear Budike is seeking an amendment in bad faith.

In the third amended complaint, Budike also alleges that AMSEA and Peco conspired to defraud the U.S. Government by agreeing that Peco would continue to overcharge the United States for electricity provided to LMSR vessels, and that AMSEA’s role in the conspiracy was to limit or stop AVE’s investigation so that Peco’s overcharging could continue, the record shows.

“Accepting these allegations as true, Relator has alleged facts that create a plausible inference that AMSEA and PECO agreed that AMSEA would inhibit AVE’s investigation so that PECO could continue to present false claims to the United States by overcharging for electricity provided to LMSR Vessels,” the judge wrote.

Surrick wrote that the amended complain could proceed since Budike described the “general composition of the conspiracy, its broad objective, and defendants’ general roles in the conspiracy.

“Accordingly, allowing Relator to amend his complaint would not be futile,” Surrick wrote.

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