Hayner Hoyt Corp. has agreed to pay $5 million, plus interest, to settle a False Claims Act (“FCA”) qui tam lawsuit, which began with allegations from a whistleblower that Hayner Hoyt misrepresented itself to win government contracts designated for companies owned by service-disabled veterans. The whistleblower will receive approximately $875,000 for his efforts in bringing the qui tam lawsuit under the FCA.
DOJ Says Settlement Resolves Allegations that Hayner Hoyt Took Advantage of Service-Disabled Veteran Contract Program
The DOJ’s press release says:
[T]he settlement resolves allegations that the defendants orchestrated a scheme designed to take advantage of the service-disabled veteran-owned small business program to secure government contracts for a now-defunct company, 229 Constructors LLC, that Gary and Jeremy Thurston created and controlled and subcontracts for Hayner Hoyt and its affiliates.
The Thurstons, neither of which is a veteran according to the DOJ, exercised significant influence and control over the decision-making of 229 Constructors during the bidding process, as well as award and performance of the disabled veterans contracts in a variety of ways, including by staffing the company entirely with then-current and former Hayner Hoyt employees and their spouses, the DOJ said. The DOJ also said that the Thurstons provided 229 Constructors with significant resources, which provided 229 Constructors with a competitive advantage over similar companies.
As part of the quit tam suit, Hayner Hoyt officials falsely claimed that 229 Constructors met all the requirements to be called a service-disabled veteran-owned small business, when the Hayner Hoyt officials knew, or at least should have known, that 229 Constructors did not meet such requirements. In the words of the DOJ:
By diverting contracts and benefits intended for our nation’s service-disabled veterans to Hayner Hoyt and its affiliates, the defendants undercut Congress’s intent of encouraging contract awards to legitimate service-disabled veteran-owned small businesses.
DOJ Investigation Reinforces Whistleblower’s Claims Made in Qui Tam Lawsuit
The DOJ’s investigation revealed what the whistleblower’s qui tam lawsuit alleged, which was that Ralph Bennett, a service-disabled veteran who allegedly ran 229 Constructors, served as the company’s president and oversaw its $14.4 million government-contracts portfolio, was not actually involved in any important decisions for the company. Instead, Bennett was responsible for overseeing Hayner Hoyt’s tool inventory and plowing snow from Hayner Hoyt’s business property. One of the Thurstons set up an email in Bennett’s name in such a way that all emails received by the veteran were automatically forwarded to him.
Hayner Hoyt Admits Violations of Law in Settlement
The DOJ contends that the defendants made a number of admissions as part of the settlement documents, including that their conduct violated federal regulations designed to encourage contract awards to legitimate service-disabled veteran-owned small businesses. The defendants also admit that 229 Constructors provided more than $1.3 million in service-disabled veteran-owned small business subcontracts to Hayner Hoyt, LeMoyne Interiors and Doyner and that those companies generated $296,819 in gross profits as a result, the DOJ said in its press release.
“Those who do business with the federal government must do so honestly,” said U.S. Attorney Richard S. Hartunian for the Northern District of New York “As today’s settlement demonstrates, this office will vigorously pursue those individuals and entities who game programs designed to help our nation’s veterans succeed in starting small businesses.”
“Federal contracting programs designed to help service-disabled veteran-owned small businesses should never be undermined by actions such as the ones taken by Hayner Hoyt Corporation officials to divert contracts to ineligible large firms,” said Inspector General Peggy E. Gustafson for the Small Business Administration (“SBA”). “The Office of Inspector General (“OIG”) will continue to work with the U.S. Department of Justice and partnering agencies in using all available remedies to deter parties from taking advantage of contracting programs designed to assist deserving service-disabled veteran-owned small businesses.”
“This settlement demonstrates the Department of Veterans Affairs, Office of Inspector General’s continued commitment to aggressively pursue individuals and companies that misrepresent themselves as service-disabled veteran-owned small businesses and deny legitimate disabled veterans the opportunity to obtain VA set-aside contracts,” said Special Agent in Charge Jeff Hughes for the Office of Inspector General for the Department of Veteran Affairs (“VA-OIG”). “The VA-OIG will continue to work diligently to protect the integrity of this important program, which is designed to aid disabled veterans. I also want to thank the U.S. Attorney’s Office and our law enforcement partners in this effort.”
“This civil settlement is a positive result of a joint investigation that proved Department of Defense contractor Hayner Hoyt executed a scheme to exploit and violate SBA and VA regulations in order to obtain service-disabled veteran-owned small business set aside contracts,” said Special Agent in Charge Craig W. Rupert of the Defense Criminal Investigative Service’s (“DCIS”) Northeast Field Office for the U.S. Department of Defense Office of the Inspector General. “Through these schemes, Hayner Hoyt denied small businesses, owned by legitimate service-disabled veterans, the opportunity to obtain government contracts. Such schemes erode public confidence and undermine the mission of our government. The DCIS and its law enforcement partners will continue to tirelessly pursue and investigate procurement fraud allegations in order to safeguard the American taxpayer and its military veterans.”
Hayner Hoyt Responds to Settlement
Hayner Hoyt has said it never intended to violate the FCA and decided to settle the qui tam case to avoid a prolonged investigation, business distractions and additional legal expenses, said Jeremy Thurston in a statement issued by Hayner Hoyt. “When 229 Constructors was formed, a former official from the Small Business Administration, accountants, attorneys and a local VA contracting officer provided guidance to ensure that the business was not violating any rules,” he said. “While the settlement is significant, it will not impact the company’s ability to continue business operations.”
Criminal Charge Still Pending Against Whistleblower
In a somewhat ironic twist, a criminal charge for grand larceny is still pending against Hayner Hoyt whistleblower John Rubar. However, that pending charge could resolve its case very soon after Hayner Hoyt agreed to settle the qui tam case. “We knew what was happening. We knew there was a whistleblower complaint. We have been talking to the feds since 2014,” Chief Assistant District Attorney Rick Trunfio said of the charge against John Rubar. Since Hayner Hoyt has agreed to pay $5 million in a settlement with the Justice Department over contract fraud allegations that Rubar raised, there will probably be a resolution soon in the criminal case against Rubar, Trunfio said. He declined to say if the charge against Rubar will be dismissed. Rubar’s attorney, Michael Arcuri, said the DA’s office has not promised to dismiss the charges, but he is hopeful. “I don’t know what they are going to do with it,” Arcuri said of allegations that Rubar stole $266,000 worth of goods from Hayner Hoyt. Rubar did not take anything owned by Hayner Hoyt when he was fired that he was not authorized to take, and he can prove that, Arcuri said. “We feel it was retaliatory,” he said of the criminal charge.
U.S. Government Uses Government Contracting to Promote Small Businesses, Especially Those Owned by Service-Disabled Vets
The U.S. government has for quite some time used government contracting to promote small businesses in general and specifically small businesses owned by service-disabled veterans. In fact, Congress has established a targeted procurement program for the U.S. Department of Veterans Affairs that requires the VA to set annual goals for contracting with service-disabled veteran-owned small businesses. In order to be eligible for these contracts, an applicant must qualify as a small business, and that a service-disabled veteran must own and control the business and handle its strategic decisions and day-to-day management.
If you or someone you know has information regarding possible false claims regarding a supposed service-disabled veteran owned business, please do not hesitate to contact our whistleblower team for a consultation about your right to file a qui tam lawsuit. Furthermore, if you or someone you know is a service-disable veteran seeking a government contract, please contact Christensen & Jensen attorney Phil Lowry (firstname.lastname@example.org) for a consultation.