U.S. ex rel. Taylor v. Gabelli
| Decision Date | 29 July 2004 |
| Docket Number | No. 03 Civ.8762(SAS).,03 Civ.8762(SAS). |
| Parties | UNITED STATES of America ex rel. R.C. TAYLOR III, Plaintiffs, v. Mario GABELLI, Lynch Corp., Lynch Interactive Corp., Lynch PCS Communications Corp., Lynch PCS Corporation A, Lynch PCS Corporation B, Lynch PCS Corporation C, Lynch PCS Corporation D, Lynch PCS Corporation E, Lynch PCS Corporation F, Lynch PCS Corporation H, Lynch Paging Corp., Fortunet Wireless Communications Corp., Aer Force Communications, Inc., Aer Force Communications LP, New England Wireless Communications, LP, New England Wireless Communications, Corp., Southeast Wireless Communications, LP, Southeast Wireless Communications Corp., Fortunet Wireless Communications, LP, Fortunet Communications LP, High Country Communications, LP, High Country Communications Corp., Aer Force Communications B, LP, Aer Force Communications II, LP, Rivgam Communicators, Inc., Gamco Investors, Inc., Gabelli Funds, Inc., BAL/Rivgam LLC, Rivgam Communicators, LLC, Gabelli Group Capital Partners, Inc., ARF Communications B, Inc., East/West Communications Inc., ABC-LMDS LLC, BCDJMS LLC, BCK/Rivgam LLC, Rivgam LMDS LLC, Beta Communications LLC, Theta Communications LLC, Theta Communications I, LLC, Theta Communications II, LLC, Theta Communications IA LLC, PTPMS Communications LLC, Ptmps II Communications LLC, Betapage Communications LLC, Sunshine PCS Corp., Alfred Angelo, Karen Johnson, Victoria Kane, James Balitsos, Marie Balitsos, T. Gibbs Kane, Nara Cadorin, Clarence Davis, Kathleen Sugarman, Gary Sugarman, Katherine Stafford, Trent Tucker, Keith Mantle, Kuni Nakamura, Jennifer Caiati, Nancy Vanneck, and Thomas Wilson, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Brendan V. Sullivan, Jr., Christopher Nicholas Manning, Manish K. Mital, Paul B. Gaffney, Williams & Connolly LLP, Washington, DC, Erika Kelton, Phillips & Cohen, Washington, DC, Marc Marmaro, Jeffer, Mangels, Butler & Marmaro, Los Angeles, CA, Richard J. Dircks, Getnick & Getnick, New York, NY, for Plaintiff-Relator.
Robert I. Bodian, Seth R. Goldman, Mintz Levin Cohn Ferris Glovsky and Popeo, PC, New York, NY, R. Robert Popeo, Mintz Levin Cohn Ferris Glovsky and Popeo, PC, Boston, MA, for Defendant Mario Gabelli.
Ethan M. Posner, Sarah L. Wilson, Christopher M. Denig, Michael C. Boteler, Covington & Burling, Washington, DC, for Defendants Other than Gabelli.
R.C. Taylor brings this qui tam action pursuant to the federal False Claims Act ("FCA" or the "Act"),1 alleging a conspiracy to defraud the United States (the "Government") through abuse of the Federal Communication Commission's ("FCC") public bidding procedure for wireless telecommunications licenses.2 Defendants are accused of participating in a scheme whereby numerous "sham entities [ ] held themselves out as legitimate `small' telecommunications businesses," but were actually "fronts for [ ] Gabelli and Gabelli-related entities, and vehicles for them to acquire valuable spectrum licenses at substantial federal discounts."3 Various corporate and individual defendants4 now move to dismiss the action against them for failure to state a claim and/or plead fraud with the requisite particularity.5 The "Rivgam defendants" and Mario Gabelli join in that motion.6 For the reasons set forth below, the CWT defendants' motion to dismiss is granted in part and denied in part; and the Rivgam defendants' and Gabelli's motions to dismiss are denied.
Gabelli is (or was) an officer of several of the corporate defendants, and the alleged mastermind of the fraudulent scheme underlying this action.8 He drew friends, family members, and social and professional acquaintances into this fraud to pose as the "owners" of the sham entities.9 In some cases, playing this part required them to certify "false" information about these companies to the FCC.10 Other defendants were recruited to serve as officers in the various sham companies.11
At the center of the fraudulent scheme are Gabelli and the so-called Gabelli-related entities, which are alleged to have created "sham" bidding entities as well as direct and indirect owners of these bidders.12 The following entities were purportedly established to participate in the FCC auctions as "bidders": (1) Fortunet Wireless, (2) High Country, (3) New England Wireless, (4) Southeast Wireless, (5) Aer Force, (6) Aer Force B, (7) BAL/Rivgam, (8) BCK/Rivgam, (9) Rivgam Communicators, (10) Beta, (11) BCDJMS, (12) ABC-LMDS, (13) Betapage, (14) PTPMS, (15) PTPMS II, and (16) Theta.13
These bidders were organized as limited partnerships, held by "indirect" (49.9%) and "direct" (50.1%) owners. The "indirect" owners include: Lynch PCS A (holds or held interests in Aer Force, Fortunet Wireless, High Country, New England Wireless, Southeast Wireless, and Fortunet); Lynch PCS B (New England Wireless); Lynch PCS C (High Country); Lynch PCS D (Southeast Wireless); Lynch PCS E (Fortunet Wireless); Lynch PCS F (Aer Force B); Lynch Paging (Betapage, PTPMS, and PTPMS II); Rivgam LLC (BAL/Rivgam); Rivgam LMDS (BCK/Rivgam); and Theta II (Theta). Among the "direct" owners are: Aer Force, Inc. (owns or owned Aer Force and Aer Force B and is co-owner of Theta I and Theta); FWCC (Fortunet Wireless); HCCC (High Country); NEWC (New England Wireless); SWCC (Southeast Wireless); Theta I (Theta); and Theta IA (co-owner of Theta I and Theta).14
The Omnibus Budget Reconciliation Act of 1993,15 amending the Communications Act of 1934, granted the FCC authority to award spectrum licenses "through a system of competitive bidding."16 Notably, Congress directed the FCC, in designing auction procedures, to "promot[e] economic opportunity and competition and ensur[e] that [ ] innovative technologies are readily accessible to the American people by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including small businesses."17
Pursuant to this congressional mandate, the FCC established a multiple-round auction process to award broadband personal communications services ("PCS") licenses.18 To promote the distribution of licenses among a diverse group of businesses, auction procedures provide various incentives for small business participation. For instance, bidding in some auction blocks (e.g., Blocks "C" and "F") is restricted to "small businesses and other designated entities with total assets and revenues below certain levels."19 In addition, certain small and very small businesses are eligible to receive "bidding credits" in the form of "percentage discount[s] applied to the high bid amount[s] for a license."20
Although both the percentage discounts offered and definition of "small business" vary by auction, the FCC uses substantially similar procedures for all auctions. First, the potential bidder must file a "short-form" application ("Form 175"), certifying, among other items, the applicant's eligibility for a federal discount and status as a qualified entity.21 The WTB then determines whether each application is "`accepted,' thereby entitling the applicant to participate in the auction, `rejected,' such that the applicant is not eligible to bid in the auction, or `incomplete.'"22 Second, following the close of each auction, winning bidders are notified and have ten days to submit a "long-form" application — the Form 600 series. This form requires applicants to provide detailed information, including their entitlement to bidding credits and any agreements into which they have entered relating to the licenses.23 Any applicant who fails to submit a timely long form or is otherwise defaulted or disqualified from receiving the license is subject to penalties under section 24.704(a)(2) of the federal regulations.24
For purposes of both forms, applicants must comply with the disclosure requirements set forth under section 1.2112 of the federal regulations, directing applicants to list:
(1) [T]he real party or parties in interest in the applicant or application, including a complete disclosure of the identity and relationship of those persons or entities directly or indirectly owning or controlling (or both) the applicant;
* * * * * *
(3) [I]n the case of a limited partnership, the name, address and citizenship of each limited partner whose interest in the applicant is 10 percent or greater ...;
(4) [I]n the case of a general partnership, the name, address and citizenship of each partner, and the share or interest participation in the partnership;
(5) [I]n the case of a limited liability company, the name, address, and citizenship of each of its members whose interest in the applicant is 10 percent or greater;
(6) [A]ll parties holding indirect ownership interests in the applicant as determined by successive multiplication of the ownership percentages for each link in the vertical ownership chain, that equals 10 percent or more of the applicant, except that if the ownership percentage for an interest in any link in the chain exceeds 50 percent or represents actual control, it shall be treated and reported as if it were a 100 percent interest; and
(7) [A]ny FCC-regulated entity or applicant for an FCC license, in which the applicant or any of the parties identified in paragraphs [(1) through (5)], owns 10 percent or more of stock.... This list must include a description of each such entity's principal business and a description of each such entity's relationship to the applicant....25
A bidder seeking the benefits associated with "small business" status must also provide the following information:
(i) [T]he names, addresses, and citizenship of all officers, directors, affiliates, and other controlling interests of the applicant....;
(ii) [A]ny FCC-regulated entity or...
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