Jackson Jambalaya

A California company withdrew its False Claims Act lawsuit that accused Mississippi billionaires Thomas and James Duff of committing PPP fraud today in U.S. District Court.

Anoush Hakimi and Peter Shahriari formed Relator, LLC to act as a qui tam whistleblower under the False Claims Act.  A qui tam plaintiff is one who files lawsuits on behalf of the federal government to reclaim misused government funds, sort of a privateering for lawyers.    

 Relator, LLC sued Thomas Duff, James Duff,  and their companies Duff Capital Investors, Southern Tire Mart, Pine Belt Motors, and Pine Belt CDJR in U.S. District Court in California on February 20, 2024.  

The plaintiff filed a notice of voluntary dismissal (with prejudice) of the lawsuit.  The notice states the government "declined to intervene." The federal government agreed to the dismissal of the lawsuit.  The Court has not yet dismissed the lawsuit. 

Synopsis of the Case

The lawsuit accused the Duff brothers of defrauding the U.S. government out of millions of dollars in PPP funds.  The plaintiff charged the Duff companies had no need of such relief because their businesses did not suffer any losses during the pandemic. Thus, they allegedly submitted phony claims to obtain PPP funds.  The federal government forgave the PPP loans. 

The plaintiff argued the company and its affiliates had many more employees than the PPP's limit of 500 employees.  The complaint claims STM had 1,300 employees and annual revenue of $600 million while Duff Capital Investors has over 10,000 employees.  

The complaint alleges the Duff companies obtained three PPP loans of $803,048, $458,200, and $5.2 million.  

Relator charged the defendants with violating the False Claims Act and False or Fraudulent Claims.  The complaint concluded with some rather colorful language: 

This is a glaring example of two wealthy billionaires taking advantage of the system.  The Duff brothers and their companies looted the government.... The disparity and level of greed is shocking.  The American people have a right to reconciliation.  

The plaintiff asked for treble damages and a civil penalty between $12,537 and $25,076 for each violation.   

The Duffs accused the Relator of using "inflammatory rhetoric" than getting its facts straight.  Relator allegedly counted franchisees as company affiliates even though a federal statute specifically authorized PPP loans to franschisees.  Duff franchisees stated in their PPP applications they were indeed franchisees. Some, such as Pine Belt Chevrolet and Pine Belt CDJR were franchises for car manufacturers: 

The result of section 636(a)(36)(D)(iv)(II) was that an entity with a franchise identifier code could get a PPP loan even if a parent company had thousands of employees spread across subsidiaries. Beneficiaries of this new rule commonly included car-dealership franchisees by auto manufacturers and franchisees of restaurant or hotel chains.

 

Relator, claim the Duffs, is merely a LLC owned by one attorney who gleans public records  and the internet to find targets for his PPP lawsuits as he did in this case.  Similar lawsuits have been dismissed as the attorney is merely trawling for lawsuits: 

Courts have repeatedly barred Relator LLC suits on original-source grounds. In United States ex rel. Relator LLC v. Kellog, No. 23-cv-118-CAB-BLM, 2024 WL 4887531, at *3 (S.D. Cal. Nov. 25, 2024), the court found that the “allegations appear to be based entirely on public information. Relator does not cite any information in the FAC that materially adds to the public disclosures or shows that Relator had any independent knowledge of the alleged fraud,” and so Relator LLC could not “circumvent[] the public disclosure bar.” In Kootstra, 2024 WL 3666470, at *5, the court found that Relator LLC’s “allegations appear to be based entirely on public information. Relator does not cite — nor can the Court locate — any information in the Complaint that materially adds to the public disclosures or shows that Relator had any independent knowledge of the alleged fraud.”

The motion to dismiss states federal law requires the plaintiff have knowledge of violation independent of and prior to public disclosures.  Since Relator had no such knowledge, the lawsuit must be dismissed.  

The defendants successfully argued the case should be transferred to federal court in Mississippi since they had no connection to California.  The Court agreed and sent the case to the Southern District of Mississippi.  

The case was assigned to U.S. District Judge Kristi Johnson.   Attorney Grafton Bragg represents Relator while attorney Matthew Miller represents the Duffs.