Relators accuse former employer of pandemic relief fraud

A federal judge in Los Angeles denied on Wednesday a motion for dismissal of a lawsuit by former employees of a nationwide real estate company who are acting as relators for the government in suing over alleged COVID-19 Payroll Protection Program fraud.

“The relators here brought forth to the government’s attention the False Claim Act statute and what we’ve alleged to be a false claim being made by ManPow LLC when it applied for its two PPP loans,” said Majed Dakak of Kesselman Brantly Stockinger LLP in Manhattan Beach, who is representing the plaintiffs with Mark Paluch of the same firm.

Dakak said in a phone call on Wednesday that his three clients became aware of internal correspondence discussing the alleged scheme after their employment with ManPow ended.

The complaint, filed in July of 2021, accuses ManPow LLC of fraudulently applying for PPP loans, despite the corporation being structured in such a way that it was already being reimbursed for payroll expenses by managers of its various regional offices.

“In spite of the fact that ManPow has no real employment expenses, it applied for and received two very low interest and fully forgivable Payroll Protection Program loans for a total of over $2.8 million,” said the complaint signed by Dakak. U.S.A. v. ManPow LLC., 2:21-CV-05418-VAP-PLA (C.D. Cal., filed July 2, 2021).

“In doing so, it represented that it has average monthly employment costs of over $560,000. But that representation was false,” the complaint continued.

ManPow submitted a PPP application in 2020 claiming to employ 41 people, successfully obtaining a loan of $1.4 million — 2.5 times the $560,000 monthly employment costs it claimed to have, the complaint alleged.

The complaint noted that costs under the PPP program were capped at $100,000 per employee per year, or $8,333.33 per month.

“Even if ManPow had 41 employees and each of those employees were compensated at or above $100,000 per year, the average monthly employment cost would be around only $340,000,” the complaint read. “Such an average monthly employment cost, when multiplied by 2.5, would support a PPP loan of approximately $850,000, but no more. ManPow sought and received considerably more than this amount.”

In January 2021, the complaint alleges, the company sought and received a second loan for approximately the same amount as the first — despite listing its employee count as 110 instead of 41.

In the motion to dismiss filed in August, defendant counsel Kevin A. Crisp of Troutman Pepper Hamilton Sanders LLP in Irvine attributed the discrepancies in employee count to a “typographical error.”

“ManPow calculated its average monthly payroll costs based on the 141 employees that it employed at the time it applied for the PPP loan,” Crisp wrote in a memorandum supporting the motion to dismiss. “However, ManPow made a typographical error on its application that stated ManPow had 41 employees instead of 141.”

Crisp could not be reached by phone or email for comment.

According to Dakak, however, this discrepancy was only part of the issue.

As it turned out, U.S. District Judge Virginia Phillips agreed, saying the argument over whether it was a typographical error was irrelevant to the law in the case.

Phillips rejected the defense’s arguments that claims made in the complaint were not subject to relief under Federal Rules of Civil Procedure 12(b) (6), and that the claims weren’t specific enough to Rule 9(b).

“Relators point out the inconsistency in the numbers represented in the loan applications,” Phillips wrote in her ruling. Furthermore, “Relators have adequately alleged ‘the who, what, when, where, and how’ of the purportedly false statements made to obtain the two PPP loans.”

A case management order setting deadlines for discovery and motions, as well as a trial date, is now pending, according Dakak.