U.S. v. Domestic Industries, Inc.
| Decision Date | 06 January 1999 |
| Docket Number | No. Civ.A. 2:97cv884.,Civ.A. 2:97cv884. |
| Citation | 32 F.Supp.2d 855 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | UNITED STATES of America, Plaintiff, v. DOMESTIC INDUSTRIES, INC., Domestic Industries of Virginia, Inc., John C. Santoro, Jr., and Joseph C. Santoro, Defendants. and Domestic Industries, Inc., Domestic Industries of Virginia, Inc., John C. Santoro, Jr., and Joseph A. Santoro, Third-Party Plaintiffs, v. William Bartlett Jones, Lynn F. Payne, Kenan Transport Company, Inc., Central Oil Dispatchers, Inc., and James H. Kennett, Third-Party Defendants. |
Craig P. Wittman, Office of the United States Attorney, Norfolk, VA, Lois J. Schiffer, Matthew W. Morrison, U.S. Department of Justice, Environment and Natural Resources Div.,Environmental Enforcement Section, Washington, DC, Beth A.M. Termini, Office of Regional Counsel, U.S. Environmental Protection Agency, Philadelphia, PA, for United States of America.
J. Gray Lawrence, Jr., Faggert & Frieden, P.C., Chesapeake, VA, Linda B. Popejoy, Anthony Mirenda, Foley, Hoag & Eliot, LLP, Washington, DC, Peter R. Ginsberg, Washington, DC, Christopher M. Kise, Tampa, FL, for Domestic Industries Corporation, John C. Santoro, Jr., Joseph A. Santoro, Domestic Industries of Virginia, Inc.
James Edward Short, Roy, Larsen, Romm & Lascara, Chesapeake, VA, for William Bartlett Jones.
William Bartlett Jones, Butner, NA, pro se.
Patrick Hugh O'Donnell, Kaufman & Canoles, PC, Norfolk, VA, for Lynn F. Payne.
Charles Franklin Midkiff, Steven H. Theisen, Michael Rigsby, Midkiff and Hiner, P.C., Richmond, VA, for Kenan Transport Company, Inc.
Robert L. Sondej, Chesapeake, VA, for Central Oil Dispatchers, Inc.
Melvin Jay Radin, Norfolk, VA, for James H. Kennett.
This matter comes before the Court on (1) Domestic Industries, Inc.'s (DIC) and Joseph Santoro's motion for summary judgment, (2) the United States' Motion for Summary Judgment on the False Claims Act (FCA) claims, and its Motion for Summary Judgment on the Resource Conservation Recovery Act (RCRA) claims (as to Domestic Industries of Virginia, Inc. (DIVI) only), and finally, (3) the third-party defendants' Motions for Summary Judgment. Additionally before the Court is the United States' Motion in Limine to exclude the second affidavit of William Jones, one of the third-party defendants named in this matter, obtained by DIVI on June 2, 1998. Due to the nature of the scheduling in this case, at the time of the hearing many of the responsive pleadings had not been received by the Court. Therefore, while the Court entertained oral argument, it was not in the position to rule from the bench on the pending motions. For this and other reasons, the Court took the motions under advisement, and the trial date was changed from December 1, 1998, to February 1, 1999, with a final pre-trial conference scheduled for January 13.
This case involves the sale of oil products under government and commercial contracts. The defendants, DIVI and DIC, and the two companies' owners and managers, John C. Santoro, and Joseph Santoro, sell and market fuel oil.
From 1990 until 1992, DIVI had a contract to supply and deliver Number 5 burner oil to several Department of Defense (DOD) and other federal customers, including the Yorktown Naval Weapons Station (Yorktown), under a Defense Logistics contract (DLA600-90-D-4473). U.S. Statement of Facts In Support of Summary Judgment at ¶¶ 10-16 (hereinafter U.S. Facts). During the same time, DIVI also supplied heating fuel oil to the DOD under a subcontract. Id. William Bartlett Jones (a.k.a.Buddy) (a third-party defendant in this matter) was the sales manager for DIVI during the time of the said contracts, and was responsible for, among other things, quality assurance. John C. Santoro, an owner of and the CEO of DIVI, directly managed Jones' activities. U.S. Facts at ¶¶ 1-10.
In June 1990, Jones agreed with James Kennett, president of Central Oil Dispatchers (Central), that Central would obtain oil products, and re-sell the products to DIVI for delivery under the DOD and commercial contracts. U.S. Facts at ¶¶ 17-22; see also Defs' Answer at ¶¶ 22-24. These products included used and waste oil. Id.1 Central obtained the used and waste oil at several cents per gallon and then sold the oil to DIVI at an inflated price. However, the price paid by DIVI was nevertheless less than the market value for the oil required under the contracts. Id.; see also, Affidavit of Carroll Moore of Moore's Waste Oil Services; Affidavit of Tom Moore of Moore's Waste Oil; Defs' Answer at ¶¶ 24-25. The difference in the price was reportedly distributed to several people as "kickbacks." Id. The DOD and commercial customers of DIVI paid market prices for the oil. Id.; see also Affidavit of Lynne Payne. While some of the oil provided by Central was from legitimate sources of new virgin oil, the oil was regularly mixed with used oil obtained from sources such as Moore's Waste Oil Service (Moore's Oil).
Moore's Oil, another of DIVI's suppliers, collected used oil from places, such as service stations and auto repair shops, and supplied the oil to DIVI. See U.S. Facts at ¶¶ 23-29; see also Affidavits of Thomas and Carroll Moore; and Statement of Facts from United States v. Moore, Case No. 2:96cr183 (E.D.Va.). Moore's Oil claims that it disguised the sale of the used oil by preparing invoices for "truck services," rather than used oil. Id. Moore's Oil did not perform any analyses of the oil. Id. Instead, Moore's Oil sold thousands of gallons of its oil to Central who in turn sold part of the oil to DIVI. DIVI ultimately delivered the oil to the DOD under the DOD/DIVI contracts and to other commercial customers. U.S. Facts ¶¶ 17-43. Moore's Oil delivered the used oil to various locations owned and operated by DIVI, including the "large tank" located at DIVI's Lee Hall, Virginia facility. U.S. Facts at ¶ 28. As with the dealings outlined above with Central, the difference in the prices paid by DIVI and Moore's Oil was distributed as kickbacks to various individuals, including Jones.2 Id.
While the prices paid by DIVI were inflated over what Moore's Oil paid, DIVI nevertheless paid less than the expected price of the type of oil required under the DOD contracts. U.S. Facts at ¶¶ 44-45; see also Deposition of Joseph Santoro at 109; Deposition of Lynn Payne (third-party defendant). As a result of these dealings, DIVI saw a forty-five to fifty-five percent savings from what it might have expected to pay at market value, and profit margins of twenty-five to forty-five percent. Id. For example, according to the United States' allegations, DIVI's dealings with Moore's Oil and others reportedly amounted to profits of approximately $1,500.00 to $3,500.00 per load, rather than the expected profit range of $150.00 per load. Id.
Similarly, DIVI obtained oil from Tank Cleaning Services — a company that drains oil from ships while at sea and stores the used oil until it can be disposed of, commonly known as "slop oil." U.S. Facts ¶¶ 30-33; see also Defendant Admissions Nos. 4(j) and 54; Defendant Interrogatory Answer No. 14; and various affidavits and depositions. However, at least on one occasion, the paperwork for the transactions between DIVI and Tank Cleaning Services was modified to deceive Yorktown to believe that the oil came from another company, Sprague Oil, rather than from Tank Cleaning Services. U.S. Facts at ¶ 33.
Kenan Transport was the main company that DIVI used to transport its black oil products. U.S. Facts at ¶¶ 34-43; see also, Defendant Admission Nos. 4(a), 4(e), 4(f), & 31, and numerous supporting depositions and affidavits included in U.S. Exs. The oil Kenan delivered to DIVI included used and waste oil from Tank Cleaning Services, Moore's Oil and others. Kenan regularly mixed used and new oil, and then delivered it to DIVI. Id. Lynne Payne, a third-party defendant, was the terminal manager at Kenan. Either Jones or Payne would direct the drivers where to get the oil for DIVI. According to the United States, the delivery tickets given to DIVI's customers, including the DOD, allegedly misrepresented the source, type and volume of the oil. Id.
As a result of the type of oil delivered by DIVI, Yorktown's oil pumps seized, and shut down. U.S. Facts at ¶¶ 57-74 (). Additionally, Yorktown began cleaning its oil strainers three times per day, rather than once a week, and a full time employee had to be assigned to work on the oil pumps. Id. The oil delivered was reportedly gritty and smelly, and often contained used seals and gaskets, like those used in automobiles. Id. Yorktown began filtering all oil delivered by DIVI, and rejected several oil deliveries due to the visible impurities in the oil. Id.
According to the depositions of John Santoro and Lynne Payne, DIVI stored its "black" oil in two primary locations — Tank 220 at the Lee Hall facility, and certain trailers in Kenan's Chesapeake facility. U.S. Facts at 75-80. The oil contained in Tank 220 included used oil received from Moore's Used Oil Services. Id.; see also Defs' Interrogatory Answer No. 14, and various affidavits and depositions including May 1998 Affidavit of John Perry (Kenan employee and eye witness to oil delivery to Tank 220 and delivery from 220 to Yorktown). Central and Tank Cleaning Services also delivered oil to DIVI at Tank 220. U.S. Facts at ¶ 77.
In March 1993, DIVI, at the direction of John Santoro, tested the oil contained in Tank 220. U.S. Facts at ¶¶ 90-95. The test results indicated that the oil contained in Tank 220 contained greater than 1,000 parts per million (ppm) halogens. U.S. Facts ¶¶ 90-95; see also Deposition of John Santoro, Defendant Admission Nos. 59 and 60. After determining the amount of halogens contained in Tank 220, a decision was made to...
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