U.S. Ex Rels. Tina Calilung v. Ormat Indus., Ltd.
| Decision Date | 24 March 2015 |
| Docket Number | 3:14-cv-00325-RCJ-VPC |
| Parties | UNITED STATES OF AMERICA ex rels. TINA CALILUNG, et al., Plaintiffs, v. ORMAT INDUSTRIES, LTD., et al., Defendants. |
| Court | U.S. District Court — District of Nevada |
This qui tam action, brought under the False Claims Act ("FCA"), arises from Ormat's allegedly fraudulent actions whereby they received approximately $136,800,000 in grant money from the United States pursuant to Section 1603 of the American Recovery and Reinvestment Act of 2009 ("ARRA"). Currently before the Court is Ormat's Motion to Dismiss (ECF No. 59) the first amended complaint ("FAC"). A Response (ECF No. 92) and a Reply (ECF No. 97) have been filed. The United States has also filed a Statement of Interest (ECF No. 91) in the matter.
Accompanying Ormat's Motion to Dismiss is a Request for the Court to take Judicial Notice of a number of documents attached to the Motion. (ECF No. 62). Tina Calilung and Jamie Kell ("Relators") opposed this request (ECF No. 93) and Ormat replied (ECF No. 98).
Also before the Court is Relators' Motion for Leave to File a Surreply (ECF No. 99) to Ormat's Motion to Dismiss. Defendants filed a Response (ECF No. 100) in opposition.
Also pending is Relators' Motion to Extend Time for Service on Foreign Defendants (ECF No. 102) and Ormat's Motion to Extend Time (ECF No. 104).
Relators initially named seven defendants in this lawsuit. On December 19, 2014, the parties stipulated to a voluntary dismissal without prejudice of Defendants Ormat Industries, Ltd. ("OIL") and First Israel Mezzanine Investors, Ltd. (ECF Nos. 105, 106). The remaining Defendants are Ormat Technologies, Inc. ("OTI"), Ormat Nevada, Inc. ("ONI"), ORNI 18, LLC ("ORNI"), Puna Geothermal Venture II, LP, and Puna Geothermal Venture, GP ("PGV") (collectively "Ormat").
Relators allege the following. OTI is a wholly-owned subsidiary of OIL and is a Delaware corporation with its principal place of business located in Reno, Nevada. (FAC ¶ 38, ECF No. 27). OTI owns and operates geothermal power plants around the globe, including plants in California, Nevada, and Hawaii. (Id. ¶ 39). ONI is a wholly-owned subsidiary of OTI and is a Delaware corporation also with its principal place of business in Reno, Nevada. (Id. ¶ 40). ONI constructs and operates geothermal power plants in the United States and internationally. (Id.). ONI constructed and operates the North Brawley Geothermal Power Plant in Imperial County, California ("the Brawley plant"), and it also operates the Puna Geothermal Power Plant in Hawaii ("the Puna Complex"). (Id.). PGV is another wholly-owned subsidiary of OTI and is a Hawaii general partnership that assists in the management and operation of the Puna Complex. (Id. ¶¶ 43-44). Relators allege that ONI pays all costs related to the Puna power plant through PGV since ONI is not licensed to do business in Hawaii. (Id. ¶ 40). As with the other Ormat Defendants, ORNI is a wholly-owned subsidiary of OTI with its principal place ofbusiness in Reno, Nevada. Relators claim that ORNI was responsible for financing the Brawley plant. (Id. ¶ 46).
Relators are former employees of OTI. Tina Calilung served as OTI's Asset Manager from November 2007 until June 2012. Her primary function was to manage the long-term power purchase agreements ("PPAs") for Ormat's operations within the United States. (Id. ¶ 23). Calilung also provided due diligence on project financing, developed and managed investor relations, and testified on Ormat's behalf before the Nevada Public Utilities Commission. (Id.). Calilung claims to have left OTI of "her own volition" in 2012, "in part due to the business practices which she felt were morally and ethically repugnant." (Id. ¶ 24). She claims to have voiced her opinions multiple times prior to leaving and alleges that she signed a waiver of employment-related claims and severance in July 2012. (Id.).
Jamie Kell was the Administrator for OTI's Business Development Department from January 2008 until September 2012. (Id. ¶ 27). In this role, she personally assisted the directors in charge of business development including OTI's Vice-President of Business Development and OTI's Manager of Public Policy. (Id.). Kell assisted her department with reviewing new geothermal projects, which involved contract negotiations with outside parties, pricing, PPA negotiations, and negotiations with public utility commissions. (Id. ¶ 28). Kell terminated her employment with OTI in September 2012. (Id. ¶ 29).
Both Calilung and Kell claim to have "direct, independent, and personal knowledge" of Ormat's alleged scheme to defraud the United States by submitting false information to the Secretary of the Treasury in order to obtain grants under Section 1603 of the ARRA. (Id. ¶ 57).
The ARRA was signed into law on February 17, 2009 for the purpose of preserving and creating jobs, as well as to "spur[] technological advances in science and health" and to "invest in . . . environmental protection, and other infrastructure that will provide long-term economic benefits." ARRA § 3(a), PL 111-5, 123 Stat. 115, 116. It sought to lay the groundwork for new green energy economies that would double the amount of renewable energy produced between 2009 and 2013. 2009 U.S.C.C.A.N. S6, 2009 WL 395189. To accomplish this goal, the ARRA temporarily provided for grants to be paid to persons engaged in developing renewable energy. See ARRA § 1603. The grants provided under Section 1603 of the ARRA were intended to replace the tax credits that would usually be offered to qualifying entities under Section 48 of the Internal Revenue Code of 1986 ("IRC"). See 26 U.S.C. § 48(d)(1) (). It was expected that the Section 1603 program would "fill the gap created by the diminished investor demand for tax credits."1 Indeed, Section 1603 is titled "Grants for Specified Energy Property in Lieu of Tax Credits. ARRA § 1603. Entities that receive a grant for renewable energy cannot also seek an energy tax credit under the IRC. 26 U.S.C. § 48(d). The Secretary of the Department of the Treasury ("the Secretary") was tasked with administrating the Section 1603 program. ARRA § 1603(f).
To qualify for receiving grant money under Section 1603, certain conditions must be met. First, the individual or entity applying for the grant must be eligible. See ARRA § 1603(g). Second, the property must be a "specified energy property." Id. § 1603(a). Under Section 1603, a specified energy property "consists of two broad categories of property—certain property thatis part of a facility described in IRC [S]ection 45 (Qualified Facility Property) and certain other property described in IRC [S]ection 48."2 Section 45 of the IRC includes a geothermal energy facility as a "qualified facility" if it uses geothermal energy to produce electricity. 26 U.S.C. § 45(d)(4). "Specified energy property," as used in Section 1603, further includes "geothermal property," as described in Section 48(a)(3)(A) of the IRC, and "geothermal heat pump property," as described in Section 48(a)(3)(A) of the IRC. The Secretary has explained that these encompass "[e]quipment used to produce, distribute, or use energy derived from a geothermal deposit . . . ."3 Third, the qualified property must be "placed in service" in 2009, 2010, or 2011 (or construction must begin during one of those years). ARRA § 1603(a).4
If these three requirements are met, then the ARRA provides a reimbursement of 30% of the basis of the property. Id. § 1603(b)(2)(A).
The basis of property is determined in accordance with the general rules for determining the basis of property for federal income tax purposes. Thus, the basis of property generally is its cost (IRC [S]ection 1012), unreduced by any other adjustment to basis, such as that for deprecation, and includes all items properly included by the taxpayer in the depreciable basis of the property, such as installation costs and the cost for freight incurred in the construction of the specified energy property.5
Section 1603 instructs that "the Secretary of the Treasury shall provide for the recapture of the appropriate percentage of the grant amount in such manner as the Secretary of the Treasury determines appropriate if the property is disposed of or otherwise ceases to be a specified energy property." Id. § 1603(f). Applicants under the Section 1603 program are also required to provide reports as required by the Secretary.6
Relators allege that Ormat received $130 million in Section 1603 grant money for the Brawley plant that was obtained using false information. (FAC ¶¶ 150-51). Construction on the Brawley plant began in February 2007 and the plant was expected to be operating by the end of 2008. (Id. ¶¶ 162-63). Based on these projections, ORNI entered into a PPA with Southern California Edison based on the representation that the plant would produce 50 MW of energy. (Id. ¶¶ 159-61). Relators claim that by December 2008, the Brawley plant was operational and began generating revenue, and Ormat began to depreciate the plant for tax purposes as early as 2009. (Id. ¶¶ 164-67).
In June 2010, Relators claim that Ormat filed, through ORNI, its first application for a Section 1603 grant with the Treasury. (Id. ¶ 168). On August 17, 2010, the Treasury awarded ORNI a grant of $108,285,626. (Id. ¶ 169). Relators allege that Ormat secured this grant by misrepresenting two key pieces of information to the Secretary. Relators believe that Ormat "falsely concocted a placed-in-service date for [the Brawley plant] of January 15, 2010." (Id. ¶ 172). Relators allege that this date is inaccurate given that the Brawley plant had been running since the end of 2008 and had generated approximately $2.5 million in revenue. (Id.). Relators further allege that the proper...
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