United States ex rel. Chepurko v. e-Biofuels, LLC
| Decision Date | 30 April 2020 |
| Docket Number | Case No. 1:14-cv-00377-TWP-MJD |
| Parties | UNITED STATES OF AMERICA, ex rel. ALEXANDER CHEPURKO, Plaintiff-Relator, v. E-BIOFUELS, LLC, CARAVAN TRADING, LLC, CIMA GREEN, LLC, IMPERIAL PETROLEUM, INC., JOSEPH FURANDO, CHRISTINE FURANDO, CRAIG DUCEY, CHAD DUCEY, and JEFFREY T. WILSON, Defendants. |
| Court | U.S. District Court — Southern District of Indiana |
This matter is before the Court on Plaintiff-Relator Alexander Chepurko's ("Chepurko") Motions for Partial Summary Judgment or alternatively Motions for Default Judgment. Chepurko seeks partial summary judgment against Defendants Joseph Furando, Craig Ducey, Chad Ducey, and Jeffrey Wilson (Filing No. 290); e-Biofuels, LLC, Caravan Trading, LLC, Cima Green, LLC, Imperial Petroleum, Inc., (Filing No. 292); and Christine Furando, (Filing No. 294) (collectively, the "Defendants"). Also before the Court is a Motion for Appointment of Counsel filed by Joseph Furando. (Filing No. 391). Chepurko blew the whistle on the Defendants for false claims submitted to the United States Government ("Government") for transactions in the renewable energy industry. Because of Chepurko's whistleblowing efforts, the Government was able to criminally prosecute some of the Defendants named in this case for their roles in a multi-state scheme to defraud biodiesel buyers and U.S. taxpayers by fraudulently selling biodiesel incentives.
Chepurko separately filed this civil False Claims Act qui tam action against the Defendants to recover damages and civil penalties on behalf of the Government and himself. For the following reasons, Chepurko's Motions for Summary Judgment are denied as to Christine Furando but granted as to the remaining Defendants. Joseph Furando's motion to recruit counsel is denied.
The following facts are not necessarily objectively true, but as required by Federal Rule of Civil Procedure 56, the facts are presented in the light most favorable to the non-moving parties. See Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
The United States Congress passed the Energy Independence and Security Act of 2007 (the "Act"), which requires the Environmental Protection Agency ("EPA") to encourage the production and use of renewable fuel in the United States. Under the Act, the Renewable Fuel Standard program was created to improve the nation's renewable energy industry and to reduce greenhouse gas emissions. The EPA was charged with developing, implementing, and enforcing the Renewable Fuel Standard program through various regulations. This program requires producers or importers of renewable fuel to generate fuel credits, known as a "renewable identification number" ("RIN"), in proportion to the amount and type of renewable fuel they produce or import. The Renewable Fuel Standard program also requires that non-renewable fuel refiners and importers, known as obligated parties, and renewable fuel exporters obtain valid RINs and retire those RINs each year by submitting them to the EPA to meet their renewable volume obligations (Filing No. 291-4 at 2-3, 5-7; Filing No. 152 at 7-8; see also 40 C.F.R. Part 80).
Renewable fuel producers have valid RINs only if their claim to the EPA to create the RINs is accurate and meets the EPA's regulations. Generating RINs for a volume of biodiesel that was not actually produced in compliance with EPA regulations is illegal. Generating RINs ispermissible only based on renewable fuel and if the production process used to make that fuel met specific regulatory criteria. It is illegal under the regulations to generate RINs more than once for any given volume of biodiesel. Renewable fuel producers are required to report data to the EPA about the production process and the feedstock used in production, and it is illegal to knowingly make materially false statements in electronic or paper submissions to the EPA. Because of the regulations, the EPA assumes when RINs are generated by producers that biodiesel was actually produced and introduced into streams of commerce pursuant to the requirements of the Renewable Fuel Standard program (Filing No. 291-4 at 5-7; Filing No. 152 at 8).
The EPA developed a system of assigning a unique identification number (a RIN) to each batch of renewable fuel. A RIN is a 38-digit number that includes the fuel batch number, the identification number of the manufacturer who created or imported the batch of fuel, and the volume of fuel produced. The producer of a batch of renewable fuel creates the RIN for the batch. Once the RIN is created, it remains attached to that batch of renewable fuel until the fuel is blended with non-renewable fuel, at which point the RIN may be "separated" from the fuel and used for compliance with regulatory renewable volume obligations, held for future compliance, or traded. If the batch is divided before it is blended with non-renewable fuel, then the RIN is also divided (Filing No. 291-4 at 5-7; Filing No. 152 at 8-9).
Each newly-made gallon of biodiesel has 1.5 RINs attached to it. Once a RIN is obtained or generated, the RIN can be used to satisfy EPA obligations or sold on the private market. The commercial market price for a single RIN averaged between $0.75 and $2.00. Furthermore, a newly-made gallon of biodiesel also has a $1.00 tax credit attached to it, which can be claimed by an entity that either mixes the biodiesel with regular diesel or uses it for fuel. Thus, a newly-made gallon of biodiesel with the RINs and tax credit attached is worth approximately $2.50 more thana gallon of biodiesel without the RINs and tax credit. Because of the value of RINs and the blender's tax credit, a gallon of biodiesel with assigned RINs and an available tax credit was worth much more than a gallon of RIN-stripped fuel (Filing No. 152 at 14).
To track the transfer of RINs, the EPA developed the EPA Moderated Transaction System. After a producer produces batches of renewable fuel and creates RINs, the producer must submit the new RINs to the transaction system within five days of the RINs' creation. The transaction system screens each submission and either accepts or rejects the new RINs. All producers and importers of renewable fuel must retain all detailed, supporting records. Producers and others engaged in fuel manufacture and RIN transactions must also submit quarterly reports to the EPA, detailing all fuel and RIN generation and transactions for that quarter (Filing No. 291-4 at 5-6; Filing No. 152 at 8-9).
The EPA has established regulations to control the generation and transfer of RINs. The regulations direct proper creation of RINs, validity of RINs, who may transfer or receive RINs, the production process of renewable fuel to support the creation of RINs, and the use of RINs to satisfy regulatory obligations. Violating the regulations, or causing others to violate the regulations, exposes the violator to civil, criminal, and administrative penalties. When individuals violate the law or regulations, the EPA issues a "notice of violation" to the individual. The EPA pursues enforcement actions against renewable fuel producers and importers that generate invalid RINs (Filing No. 291-4 at 5-7; Filing No. 152 at 7, 10-12; see also 40 C.F.R. Part 80).
Chepurko is a United States citizen and he personally worked for companies owned by Christine Furando and Joseph Furando between January and August 2011. (Filing No. 152 at 35.). On October 11, 2011, he voluntarily contacted the Government to disclose information about false claims that had been submitted to the Government. Between October 2011 and May 2012,Chepurko voluntarily disclosed to the Government through written disclosures and in-person meetings extensive information that in turn was used by Chepurko for the allegations of this action. Chepurko and his counsel met with representatives of the U.S. Attorney's Office, the Internal Revenue Service ("IRS"), the EPA, the Department of Justice, the Federal Bureau of Investigation, and the Securities and Exchange Commission (Filing No. 333-2; Filing No. 333-3; Filing No. 333-4; Filing No. 333-5; Filing No. 333-6; Filing No. 333-7; Filing No. 333-8; Filing No. 333-9; Filing No. 333-10).
Chepurko's disclosures provided information that allowed the Government to conduct criminal and civil investigations of most of the Defendants named in this action. The EPA issued notices of violation against some of the Defendants as well as against some of the customers of the Defendants who were affected by the fraudulent scheme. At least one civil action, one administrative action, and two criminal actions were filed by the Government based on the information disclosed by Chepurko (Filing No. 152 at 3-4, 13).
Located in Middletown, Indiana, and founded in 2006, Defendant e-Biofuels, LLC ("e-Biofuels") is the entity in this action that falsely claimed to produce biodiesel for which fraudulent RINs were created. It had a production plant that could process animal fats and vegetable oils into renewable fuel. Defendant Craig Ducey was the president and chief executive officer of e-Biofuels, and his brother, Defendant Chad Ducey was the chief operating officer. They were co-owners of e-Biofuels. In May 2010, e-Biofuels was purchased by Defendant Imperial Petroleum, Inc. ("Imperial"), an Evansville, Indiana based company. Defendant Jeffrey Wilson was the chairman and president of Imperial. After Imperial purchased e-Biofuels, Craig and Chad Ducey continued to serve as paid officers or managers for e-Biofuels (Filing No. 291-4 at 3-4; Filing No. 152 at 5-7).
Defendant Caravan Trading, LLC ("Caravan") was a privately-owned New Jersey business, owned by Defendants Joseph Furando and his wife, Christine Furando. Caravan engaged in selling and trading fuel and other products. Caravan sold RIN-less biodiesel to e-Biofuels that e-Biofuels then...
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