Opinion
104330/2012
08-07-2019
CITY OF NEW YORK, State of New York, City of New York ex rel. Clifford Weiner, Plaintiffs, v. SIEMENS ELECTRICAL, LLC. f/k/a Schelesinger-Siemens Electrical, LLC, Siemens Industry, Inc. f/k/a Siemens Energy & Automation, Inc., Schlesinger Electrical Contractors, Inc., Defendants.
Counsel City- Zachary Carter, Brian T. Horan, Corporation Counsel Relator- Michael Smikun, Callagy Law, P.C. Siemens defendants- Wendy Schwartz, New York, Binder & Schwartz LLP
Counsel
City- Zachary Carter, Brian T. Horan, Corporation Counsel
Relator- Michael Smikun, Callagy Law, P.C.
Siemens defendants- Wendy Schwartz, New York, Binder & Schwartz LLP
Margaret A. Chan, J. In this civil enforcement action, plaintiff, the City of New York (the City), now moves pursuant to State Finance Law § 190 (5)(b)(ii) for a determination that the proposed settlement between the City and defendants, Siemens Electrical, LLC, f/k/a Schlesinger-Siemens Electrical, LLC (Siemens Electrical); Siemens Industry, Inc., f/k/a Siemens Energy & Automation, Inc., and Schlesinger Electrical Contractors, Inc. (collectively, Siemens defendants), is fair, adequate, and reasonable. The relator, Clifford Weiner (Relator), opposes the proposed settlement. The Siemens defendants support the motion.
For reasons stated below, the City's motion is granted; and the Relator's requests for an evidentiary hearing, to supersede the City in this action, and for the court to calculate his qui tam award are denied. The Decision and Order is as follows:
FACTS
This action arises out of five contracts between the City of New York Department of Environmental Protection (DEP) and Siemens Electrical in connection with the upgrade and construction of water treatment facilities in Manhattan, the Bronx and Brooklyn. Siemens Electrical was formed on August 27, 2004, under the name Schlesinger-Siemens Electrical, LLC, by Siemens Energy and Automation, Inc. and Schlesinger Electrical Contracts, Inc., pursuant to the Delaware Limited Liability Company Act, Delaware Code § 18-101, et seq . Siemens Electrical was formed for the purpose of bidding upon, negotiating, and performing electrical projects for the DEP.
Between August 31, 2005, and January 19, 2007, Siemens Electrical won bids for one contract for upgrades to the 26th Ward Wastewater Treatment Plant in Canarsie, Brooklyn; two contracts for upgrades of the Wards Island Wastewater Treatment Plant on Wards Island in Manhattan; and two contracts for the construction of the new Croton Water Filtration Plant in the Bronx. The total value of the five contracts was $234,415,844.
In 2012, the Relator, a former vice president of Schlesinger who served on Siemens Electricals' board of managers in 2005, filed the complaint under seal, alleging that between 2005 and 2012 Siemens Electrical violated the New York False Claims Act (NYFCA) by misrepresenting its compliance with two distinct statutes that Siemens Electrical was required to comply under each of the DEP contracts. First, Relator alleged that Siemens Electrical submitted claims for payment overstating the work performed by Minority Business Enterprises (MBE) (NYSCEF No. 142, qui tam compl, ¶¶82-91; NYSCEF # 8, superseding compl, ¶¶77-94). Relator alleged that Siemens Electrical schemed to evade MBE subcontracting requirements ( Executive Law § 310 et seq . ) by fabricating a relationship with a contractor to fulfill the requirement that certain contracts be given to MBEs for all five contracts it had with the DEP, when in fact, the equipment was installed by a non-MBE firm.
And second, Relator alleged that Siemens Electrical fraudulently represented itself as a business with a licensed Master Electrician as an officer of the company, in violation of New York City Administrative Code § 27-3017(a)(1), in order to win its bid on the five contracts with the DEP and in Siemens Electrical's performance of the contracts (qui tam compl, ¶¶102-112; superseding compl, ¶¶29-76).
At that time, the New York County District Attorney's Office (DANY) was investigating Siemens Electrical for its noncompliance with the MBE and Master Electrician requirements. In January 2013, DANY and Siemens Electrical entered into a Deferred Prosecution Agreement (DPA), wherein Siemens Electrical admitted to defrauding the Department of Buildings (DOB) and DEP by falsely overstating the actual participation of MBEs and "knowingly violated the New York City Electrical Code as it relates to electrical contractors and Master Electricians" (NYSCEF # 140, DPA, ¶18). Siemens Electrical agreed to forfeit $10 million and take remedial measures, including the implementation of new policies and enhanced internal control (DPA, ¶10). Siemens Electrical has satisfied the terms of the DPA and the criminal action has been dismissed.
In 2015, the City and the Siemens defendants engaged in settlement discussions before a mediator. No agreement was reached. Soon thereafter, the City, with authorization from the State pursuant to State Finance Law § 190(2)(c)(iii), filed its superseding complaint substituting the original plaintiff in this action and converting the qui tam civil action into a civil enforcement action by the City ( State Finance Law § 190[2][c][i] ).
The superseding complaint alleges claims under State Finance Law §§ 189(1)(a), (b), and (c) and New York City's version of the False Claims Act ( NYC Admin. Code §§ 7-803[a][1], [2], and [ 3 ] ). The City's superseding complaint differs from the qui tam complaint, as relevant to the instant motion, to the extent that it elaborates on the factual allegations of the Master Electrician and MBE related claims against the Siemens defendants. Soon thereafter, the Siemens defendants moved pursuant to CPLR 3212 for summary judgement on the basis of a recent decision of the United States Supreme Court, Universal Health Servs., Inc. v. United States ex rel. Escobar , ––– U.S. ––––, 136 S Ct. 1989, 195 L.Ed.2d 348 [2016] ) ( Escobar ). Another justice of this court, Hon. Joan A. Madden, denied the Siemens defendants' motion (NYSCEF # 145; City of New York v. Siemens Elec. LLC , Sup Ct, New York County, July 31, 2017, Madden, J., index no. 104330/12). As to the City's NYFCA claims based on the implied certification theory, the court held, first, that additional discovery was required to determine the materiality of the MBE claims, and second, that the documentary evidence relied upon by the Siemens defendants failed to establish that the Siemens defendants' false statements were not material as to their compliance with the master electrician requirements (id . at *5-8).
After resuming discovery, the parties again engaged in settlement discussions. This time, the City and the Siemens defendants reached an agreement and settled the claims for $1.5 million (NYSCEF # 138, proposed settlement ¶2). The settlement of the City's claims was negotiated and executed contemporaneously with the agreement to settle three separate actions by the Siemens defendants against the City (the commercial settlement) (NYSCEF #139, commercial settlement agreement). The City and the Siemens defendants agreed that the proposed settlement amount is to be paid by a setoff against the commercial settlement amount (proposed settlement ¶2). The amount of the proposed settlement was reviewed and authorized by the Office of the New York City Comptroller.
Prior to the City filing its superseding complaint this this action, the Siemens defendants filed three separate actions in Supreme Court, New York County, related to three of the five contracts at issue herein. The commercial settlement provides for the City to pay the Siemens defendants $4,650,000 to settle those claims (commercial settlement ¶2).
DISCUSSION
This Discussion section addresses four issues under the New York False Claims Act: (1) Whether the proposed settlement should be approved; (2) whether Relator is entitled to discovery and an evidentiary hearing; (3) whether Relator may supersede the City in this action; and (4) the proportion of the potential award to which the Relator is entitled.
1. The Proposed Settlement
A. The False Claims Act
In 2007, New York State enacted the New York False Claims Act (NYFCA)
modeling it after the federal False Claims Act (FCA). The NYFCA (State Finance Law, Art. 13 §§ 187-194) provides that a relator may file a qui tam civil action on behalf of the person and the local government (id . § 190[2][a]). After a qui tam action is commenced, the government may serve a complaint against the defendant, substituting itself as the plaintiff and "convert the action in all respects from a qui tam civil action brought by a private person into a civil enforcement action by the local government" (id . § 190[2][c][iii]).
Relevant to the issue on whether the proposed settlement should be approved is State Finance Law § 190(5)(b)(ii), which states, in relevant part, that:
"The state or a local government may settle the action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after an opportunity to be heard, that the proposed settlement is fair, adequate, and reasonable with respect
to all parties under all the circumstances." ( State Finance Law § 190[5][b][ii] ).
In the context of a claim under the NYFCA, New York State case law does not provide a standard to determine whether a "proposed settlement is fair, adequate, and reasonable with respect to all parties under all the circumstances" (id .). Since the NYFCA is modeled after the FCA, it is appropriate to look to federal jurisprudence when interpreting the NYFCA ( State ex rel. Seiden v. Utica First Ins. Co. , 96 A.D.3d 67, 71, 943 N.Y.S.2d 36 [1st Dept. 2012] ). The federal False Claims Act (FCA) imposes liability on "any person who ‘knowingly presents ... a false or fraudulent claim for payment or approval,’ 31 U.S.C. § 3729(a)(1)(A), to a U.S. government official" ( Kellogg Brown & Root Servs., Inc. v. U.S., ex rel. Carter , ––– U.S. ––––, 135 S. Ct. 1970, 1973, 191 L.Ed.2d 899 [2015] ). "Under the qui tam provisions of the FCA, a private individual, referred to as a Relator, may file an action on behalf of the federal government against any individual or company who has knowingly presented a false claim to the government for payment" ( U.S. ex rel., Sequoia Orange Co. v. Baird-Neece Packing Corp. , 151 F.3d 1139, 1143 [9th Cir. 1998] ). A successful relator will generally receive a share of the civil fines imposed and be eligible for attorneys' fees and costs (see 31 USC § 3730 [d] ).
The federal counterpart to State Finance Law § 190(2)(c)(iii) differs slightly in that it states, in relevant part, that: "The Government may settle the action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances" ( 31 USC § 3730 [c][2][B] ).
B. Standard for Approving a Proposed Settlement of a Qui Tam Action
The City and the Siemens defendants urge the court to adopt the deferential standard that the Ninth Circuit set forth in U.S. ex rel., Sequoia Orange Co. v. Baird-Neece Packing Corp. , 151 F.3d 1139, 1145 [9th Cir. 1998] ). Relator, on the other hand, contends that the court should evaluate the fairness of the settlement under the standard used by various federal district courts to evaluate the fairness of the settlement of a class-action lawsuit under the Federal Rules of Civil Procedure Rule 23(e).
The federal courts are split on this issue. The Ninth and Tenth Circuits have adopted the deferential Sequoia standard. The issue in Sequoia was whether the government was permitted to dismiss a meritorious claim under the FCA ( Sequoia Orange , 151 F.3d at 1143 ). The panel held that in order to dismiss a qui tam action, the government must first identify "a valid government purpose" and a "rational relation between dismissal and accomplishment of the purpose" in order to shift the burden to the Relator to demonstrate fraud on the court, arbitrariness, illegality, or unfairness ( id . at 1145 ; see Ridenour v. Kaiser-Hill Co. , 397 F.3d 925 [10th Cir. 2005] [adopting the Sequoia standard for dismissals] ). The Sequoia panel found that the legislative history of the FCA indicates that the qui tam plaintiff may act as a check that the "Government does not neglect evidence, cause undue delay, or drop the false claims case without legitimate reason" ( Sequoia Orange , 151 F.3d at 1144., quoting S Rep No. 99-345, at 25-26 [1986 ], reprinted in 1986 USCCAN 5266, 5291). Thus, the panel explained that the congressional intent was that "the qui tam statute create only a limited check on prosecutorial discretion to ensure suits are not dropped without legitimate governmental purpose" ( id . at 1145 ).
While the Sequoia standard applies to the dismissal of qui tam actions, some courts have also applied the standard to settlements (see United States ex rel. Shepard v. Grand Junction Reg'l Airport Auth. , US Dist Ct, Colo, 13 Civ 00736, Arguello, J., 2017, *3 ["This Court sees no reason why the government should be given such broad discretion to dismiss a case but not to settle it under circumstances that it deems fair, adequate, and reasonable."]; United States v. Ctr. for Diagnostic Imaging, Inc. , US Dist Ct, WD Wash, C05 civ 0058, Lasnik, J., 2011 [using the Sequoia standard to analyze the proposed settlement] ).
The Eleventh Circuit also recently adopted its own deferential standard in determining the fairness of a proposed settlement. In United States v. Everglades Coll., Inc. , 855 F.3d 1279 [11th Cir. 2017] ), the panel determined that the court must "ask whether the government has advanced a reasonable basis for concluding the settlement is in the best interests of the United States, and whether the settlement unfairly reduces the Relator's potential qui tam recovery" ( id . at 1289 ).
Some federal courts have taken a different course by requiring that the standard to determine the fairness of class action settlements under Rule 23 be used to determine whether a settlement is "fair, adequate and reasonable under all the circumstances" (see e.g. United States ex rel. Schweizer v. Oce North America , 956 F. Supp. 2d 1, 11 [D.C. Cir. 2013] [at the request of the parties, analyzing the proposed settlement under a FCA qui tam action using the rule governing judicial review of class action settlements]; United States v. Stericycle , Inc., US Dist Ct, ND IL, 08 civ 2390, Hart, J., 2016 [finding that while the court must analyze proposed settlements under 31 USC § 3730 (c)(2)(B) using the same factors evaluating class action settlements, the court is deferential to the views of the government]; U.S. ex rel. Nudelman v. Int'l Rehab. Associates, Inc. , US Dist Ct, ED PA, 00 civ 1837, Joyner, J., 2004 [holding, as a matter of first impression, that Congress intended fair, adequate, and reasonable in 31 USC § 3730(c)(2)(B) to be analyzed the same as class actions]; see also , U.S. ex rel. Resnick v. Weill Med. Coll. of Cornell Univ. , US Dist Ct, SD NY, 04 civ 3088, Pauley, J., 2009 [following the Nudelman approach] ).
This court agrees with the standard articulated in Everglades as the appropriate standard for reviewing the proposed settlement of a qui tam action under the NYFCA. In Everglades , the panel held that the Rule 23 standard is not the proper framework for evaluating FCA settlements between the government and defendant in a qui tam action ( Everglades , 855 F.3d at 1287-1289 ). The Everglades panel found that a qui tam FCA suit materially differs from class-action litigation in two respects. First, unlike a class-action, the government in a qui tam action, "is agreeing to compromise with respect to its own injuries only, not those of the Relator or other absent parties" ( id . at 1288 ). And second, the government's basis for settling a qui tam action includes factors that are not present when evaluating a proposed settlement between private parties, including: damages proportionate to the conduct; public policy and political ramifications; and the expense of continued litigation ( id . ).
Instead, the panel in Everglades found that "[i]n the FCA context there must be considerable deference to the settlement rationale offered by the government" because of the "loose similarity between government-obtained FCA settlements and decisions by the government not to prosecute or enforce an administrative remedy, which are presumptively unreviewable" ( id ., citing Heckler v. Chaney , 470 U.S. 821, 832, 105 S.Ct. 1649, 84 L.Ed.2d 714 [1985] ; see Sequoia Orange , 151 F.3d at 1144 [noting that the "government's power to dismiss or settle an action is broad"] ).
For the same reasons articulated in Everglades , this court finds that the standard used to scrutinize class action settlements is inapt to analyze the settlement of a claim under the NYFCA. Notably, the purpose of Rule 23(e) is to protect absent class members from unfair settlements affecting their rights (see Amchem Products, Inc. v. Windsor , 521 U.S. 591, 623, 117 S.Ct. 2231, 138 L.Ed.2d 689 [1997] ["Subdivisions (a) and (b) [of Rule 23 ] focus court attention on whether a proposed class has sufficient unity so that absent members can be fairly bound by decisions of class representatives. That dominant concern persists when settlement, rather than trial, is proposed."] ). Here, however, the government, not absent class members, nor the Relator, is the real party in interest ( Certain Underwriters at Lloyd's London Subscribing to Policy No. QK0903325 v. Huron Consulting Grp., Inc., 127 A.D.3d 663, 665, 8 N.Y.S.3d 302 [1st Dept. 2015] [noting that in a FCA qui tam action, the government is the injured party, the claim is brought in the government's name, and the government provides the measure for damages to be trebled and receives the lion's share of any recovery], citing U.S. ex rel. Mergent Servs. v. Flaherty , 540 F.3d 89, 93 [2d Cir. 2008] [internal citation omitted] ).
Further, section 190 of the NYFCA demonstrates that the New York State Legislature intended for courts to defer to the government's rationale in settling a qui tam action converted to a civil enforcement action. "In matters of statutory ... interpretation, ‘legislative intent is the great and controlling principle, and the proper judicial function is to discern and apply the will of the [enactors]’ " ( Nostrom v. A.W. Chesterton Co. , 15 N.Y.3d 502, 507, 914 N.Y.S.2d 725, 940 N.E.2d 551 [2010], quoting ATM One, LLC v. Landaverde , 2 N.Y.3d 472, 477, 779 N.Y.S.2d 808, 812 N.E.2d 298 [2004] ). Additionally, inquiry should be made into "the spirit and purpose of the legislation, which requires examination of the statutory context of the provision as well as its legislative history" ( Landaverde , 2 N.Y.3d at 477, 779 N.Y.S.2d 808, 812 N.E.2d 298 [internal quotation marks and citation omitted] ).
The language of the NYFCA indicates that the government has substantial control over a qui tam action. For instance, under the section entitled "Rights of the parties of qui tam actions," where a qui tam action involving damages to a local government is converted to a civil enforcement action, "[t]he local government shall have primary responsibility for investigating and prosecuting the action" and that "[u]nder no circumstances shall the state or a local government be bound by an act of the person bringing the original action" ( State Finance Law § 190[5][a] ). And the government may limit the Relator's participation in the action ( id . § 190[5][b][iii] ).
Notably, the NYFCA takes the government's involvement in a qui tam action one step further. That is, the FCA permits the government to intervene in the qui tam action, whereas the NYFCA permits the City to convert a qui tam action to a civil enforcement action on behalf of the government ( State Finance Law § 190[2][c][iii][A] ). The NYFCA provides for government enforcement in civil enforcement actions ( State Finance Law § 190[1], [2], [5] ; People ex rel. Schneiderman v. Sprint Nextel Corp. , 26 N.Y.3d 98, 106, 21 N.Y.S.3d 158, 42 N.E.3d 655 [2015] [noting that the NYFCA provides for enforcement by the attorney general in civil enforcement actions] ). By adopting the text permitting the New York State Attorney General to convert a qui tam action under the NYFCA to a civil enforcement action wherein the City supersedes the relator as plaintiff, the New York State Legislature intended for the courts to defer to the government's rationale for settlement when determining whether a proposed settlement is "fair, adequate, and reasonable" ( State Finance Law § 190[5][b][ii] ).
The FCA, on the other hand, "permits the Government to intervene and proceed with the action" (31 USC § 3730 [b][2] ). Where the government proceeds with an FCA action, "it shall have the primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action. Such person shall have the right to continue as a party to the action, subject to the limitations set forth in paragraph (2)" (id . § 3730 [c][1] ).
The court disagrees with City and the Siemens defendants' contentions that the Sequoia standard should be used for evaluating the proposed settlement of claims under the NYFCA. The panel in Sequoia addressed the government's motion to dismiss a qui tam action, and not the settlement of one. The distinction is material. Under 31 USC § 3730(c)(1), the government may dismiss an FCA action so long as the relator has been given notice by the government of the government's filing of the motion to dismiss and the court has provided the relator with an opportunity for a hearing on the motion.
However, for a proposed settlement to be approved under the FCA, the court must find, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances ( 31 USC § 3730 [c][2][b] ). Accordingly, a plain reading of the two FCA sections demonstrates that a motion to dismiss under the FCA is given less scrutiny than the court's analysis on whether to approve a proposed settlement. Thus, this court declines to apply the Sequoia standard to determine the fairness of a proposed settlement.
As required by Everglades , to determine whether a proposed settlement is "fair, adequate and reasonable," the court must determine: (1) whether the government has advanced a reasonable basis for concluding the settlement is in the best interests of the government; and (2) whether the settlement unfairly reduces the Relator's potential qui tam recovery ( Everglades , 855 F.3d at 1289 ).
C. The Proposed Settlement is "Fair, Adequate, and Reasonable"
The City has demonstrated a reasonable basis to determine that the proposed settlement is in the best interest of the City and does not unfairly reduce the Relator's potential qui tam recovery. As noted in Everglades , the government's decision to settle a qui tam action may be based on several factors, and not "solely on whether settlement is most likely to maximize the monetary recovery" ( id. ).
Even if the court adopted the Nudelman approach, the conclusion would be the same (see Gordon v. Verizon Commc'ns, Inc. , 148 A.D.3d 146, 156-159, 46 N.Y.S.3d 557 [1st Dept. 2017] [analyzing class action settlement approval factors] ).
The proposed settlement imposes a civil penalty for each of the alleged regulatory violations. According to the City, the $1.5 million settlement "reflects the civil penalties that would be available if Defendants' defenses were rejected wholesale and liability were imposed for every one of the approximately 260 payment requisitions at issue" (NYSCEF # 137, Horan Aff., ¶27). While the civil penalty amount is on the low end of the penalty scheme, the negotiation of a settlement wherein each regulatory violation was accounted for clearly benefits the City and carries out the intent of the FCA (see State ex rel. Grupp v. DHL Exp. (USA), Inc. , 19 N.Y.3d 278, 289, 947 N.Y.S.2d 368, 970 N.E.2d 391 [2012], citing Mem in Support of 2006 NY Senate Bill S3895). In fact, Relator admits that the settlement was "beneficial to the City," and suggests that the settlement amount was favorable (NYSCEF # 154, Relator's Mem of Law at 44).
Further, the proposed settlement is based on the City's desire to conserve limited resources, avoid the complexity, expense, and duration of ongoing litigation, and in consideration of the precedential impact of a potentially adverse decision (Horan Aff. ¶¶27-29; Everglades , 855 F.3d at 1289 ). As in Everglades , an adverse decision in this matter may limit the City's enforcement efforts. Additionally, the settlement of this case further conserves the City's resources, as it is paired with the settlement of the separate actions Siemens defendants filed against the City. Whether the proposed settlement amount is applied as an offset to the commercial settlement amount is of no moment — the City still benefits from the savings it may have otherwise had to pay.
The City further demonstrates that the proposed settlement represents a fair outcome considering the risk of litigation. The City contends that liability of its claims against the Siemens defendants is uncertain in light of the United States Supreme Court's decision in Escobar, 136 S. Ct. 1989. The Court in Escobar held, among other things, that the FCA's materiality requirement to mean that "[t]he misrepresentation must be material to the other party's course of action" ( id . at 2002 ). Thus, Escobar requires a plaintiff alleging an FCA claim to demonstrate that a defendant's misrepresentations were material to the government's decision to remit payment. While Escobar was an implied certification case, the Court's holding suggests that the materiality requirement also applies to cases brought under the express certification theory (see id. ; Bishop v. Wells Fargo & Co. , 870 F.3d 104, 107 [2d Cir. 2017] ).
The record includes evidence demonstrating, and the parties do not dispute, that the City continued paying Siemens Electrical despite knowing of their regulatory non-compliance. Accordingly, an issue of fact may exist as to whether Siemens Electrical's alleged implied and express false certifications of compliance with the MBE and Master Electrician requirements were material to the City's payment decisions.
Relator contends that the proposed settlement is unfair, in that the City may be entitled to disgorgement damages in excess of $750 million if the damages are trebled. However, there is a dispute as to whether the City is entitled to any damages. "The measure of the government's damages under the False Claims Act would be the amount that it paid out by reason of the false statements over and above what it would have paid if the claims had been truthful" ( United States v. Mackby , 339 F.3d 1013, 1018 [9th Cir. 2003], citing United States v. Woodbury , 359 F.2d 370, 379 [9th Cir. 1966] ).
Here, the City may be unsuccessful in showing that it incurred damages because of Siemens Electrical's false statements regarding the credits improperly claimed for work performed by MBEs, since the City received the benefit of the supply and installation of the equipment. This litigation risk is further compounded by the unique nature of the City's claims: the City's bargained-for-benefit involved both tangible and intangible benefits. Considering the real risk that the City may not recover on its claims, it cannot be said that Relator's potential award was unfairly reduced.
Moreover, the cases cited in support of Relator's argument for disgorgement damages are inapposite since they involve circumstances where the government received no benefit at all, whereas here, it is undisputed that the Siemens defendants performed the contracted electrical work (see Johnson v. D.C ., 144 A.3d 1120, 1140 [D.C. Cir. 2016] ; U.S. ex rel. Feldman v. van Gorp , 697 F.3d 78, 87 [2d Cir. 2012] ; U.S. ex rel. Longhi v. United States , 575 F.3d 458, 472 [5th Cir. 2009] ). Relator ignores this distinction is his papers.
Relator's argument that the Siemens defendants are estopped from denying Siemens Electrical's false statements is without merit. The Deferred Prosecution Agreement states that "Siemens Electrical may raise any and all defenses ... in any civil proceedings brought by third parties ...." (DPA at 11, ¶23). Finally, whether the proposed settlement amount has already been irrevocably conferred to the City does not in and of itself render the settlement unfair, unreasonable or inadequate, and relator does not offer a basis for how it is.
2. Relator's Entitlement to an Evidentiary Hearing and Additional Discovery
Relator contends that he is entitled to an evidentiary hearing and discovery on the fairness, adequacy, and reasonableness of the settlement. A search of the cases in which a relator in a NYFCA qui tam action is entitled to a hearing to determine whether the proposed settlement is fair, adequate, and reasonable, finds no precedents, and presents for this court, a novel issue.
Initially, the court finds that Relator is not entitled to an evidentiary hearing as of right. Under the NYFCA, the court may approve a proposed settlement notwithstanding the objections of the relator "after an opportunity to be heard" ( State Finance Law § 190[5][b][ii] ). The FCA slightly differs, in that it states that the government may settle an action notwithstanding the objections of the relator "after a hearing" ( 31 USC § 3730 [c][2][B] ).
Here, Relator was given notice of the City's motion to confirm the proposed settlement and an opportunity to be heard on the motion. The court reviewed Relator's brief in opposition and heard oral argument on the motion on February 27, 2019. Hence, Relator had and used his opportunity to be heard. Second, Relator fails to establish grounds for an evidentiary hearing and additional discovery. The panel in Sequoia held that "[a] hearing is appropriate 'if the Relator presents a colorable claim that the settlement or dismissal is unreasonable in light of existing evidence, that the Government has not fully investigated the allegations, or that the Government's decision was based on arbitrary or improper considerations’ "( Sequoia , 151 F.3d 1139, 1145 [9th Cir. 1998], quoting S. REP. NO. 99-345, at 26 [1986 ] ); see Everglades , 855 F.3d at 1290 ["A district court could give a qui tam Relator the opportunity to present and develop new evidence when he shows a substantial and particularized need for such a hearing"]; Ridenour v. Kaiser-Hill Co. , 397 F.3d 925, 935 [10th Cir. 2005] [same]; U.S. ex rel. Schweizer v. Oce N. Am ., 956 F. Supp. 2d 1, 11 [D.C. Cir. 2013] [explaining that a court may order additional discovery where the government fails to adequately explain its rationale behind the proposed settlement] ).
Relator contends that the difference between the proposed settlement amount and the purported value of the case, and the fact that the settlement amount is to be paid as a setoff against the City in the commercial settlement demonstrates the unreasonableness and impropriety of the settlement. Relator's contention is addressed in the preceding section—the City has adequately explained its rationale behind the proposed settlement. Relator next argues that his exclusion from the settlement negotiations between the City and Siemens defendants demonstrates collusion. This argument is speculative, and the City apprised Relator of its settlement negotiations with the Siemens defendants (NYSCEF # 239, City's Reply Mem at 4). In any event, the City was substituted as plaintiff in this action and was entitled to conduct settlement negotiations without informing the Relator ( State Finance Law § 190[5][a] ).
As the Relator has failed to "[c]ome forward with a colorable and non-speculative claim that the government's settlement rationale is improper and that further disclosures are needed," his requests for an evidentiary hearing and discovery are denied ( Everglades , 855 F.3d at 1291 ).
3. Relator's Request to Supersede the City in this Action
Relator requests that he be permitted to "take over the litigation" from the City. Relator fails to cite to any basis to support his request (Relator's Mem of Law, p. 20). State Finance Law § 190(5)(a) states that "the local government shall have primary responsibility for investigating and prosecuting the action." Accordingly, Relator's request that he be permitted to supersede the City in this action is denied.
4. Relator's Award
Finally, Relator requests that the court calculate his qui tam award ( State Finance Law § 190[6][a] ). Relator's request is premature. The City's motion does not address the amount of the award to which Relator is entitled and Relator does not cross-move for the court to calculate his award. The parties shall appear for an in-court conference to address Relator's potential award.
Accordingly, it is hereby
ORDERED that plaintiff, the City of New York's motion pursuant to State Finance Law § 190 (5)(b)(ii) for a determination that the proposed settlement between the City and defendants, Siemens Electrical, LLC, f/k/a Schlesinger-Siemens Electrical, LLC (Siemens Electrical); Siemens Industry, Inc., f/k/a Siemens Energy & Automation, Inc., and Schlesinger Electrical Contractors, Inc. is fair, adequate, and reasonable is granted; it is further
ORDERED that the Relator Clifford Weiner's requests made in his opposition papers are denied; and it is further
ORDERED that the parties shall appear for a status conference to address the Relator's potential award on September 4, 2019, at 10:00am.
This constitutes the Decision and Order of the court.