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United States ex rel. Chepurko v. E-Biofuels, LLC

United States District Court, S.D. Indiana, Indianapolis Division

January 10, 2019

UNITED STATES OF AMERICA ex rel Alexander Chepurko, Plaintiff,
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. ALEXANDER CHEPURKO, Relator.

          ORDER ON MOTION TO DISMISS AND MOTION FOR JUDICIAL NOTICE OF EXHIBITS

          TANYA WALTON PRATT, JUDGE

         This matter is before the Court on Defendant Christine Furando's (“Ms. Furando”) Motion to Dismiss filed pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) (Filing No. 238). Also pending before the Court is Plaintiff-Relator Alexander Chepurko's (“Chepurko”) Motion for Judicial Notice of Exhibits (Filing No. 256). Chepurko blew the whistle on Ms. Furando and co-defendants e-Biofuels, LLC, Caravan Trading, LLC, Cima Green, LLC, Imperial Petroleum, Inc., Joseph Furando, Craig Ducey, Chad Ducey, and Jeffrey Wilson (collectively, “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 prosecute some of the Defendants named in this case, resulting in criminal convictions. 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.

         Ms. Furando filed the instant Motion to Dismiss, asserting that Chepurko failed to state a viable claim against her and that this Court lacks subject matter jurisdiction over the claims. Chepurko filed a Motion asking the Court to take judicial notice of exhibits submitted in opposition to the Motion to Dismiss. For the following reasons, the Motion to Dismiss is granted in part and denied in part, and the Motion for Judicial Notice of Exhibits is granted.

         I. BACKGROUND

         The following facts are not necessarily objectively true, but as required when reviewing a motion to dismiss, the court accepts as true all factual allegations in the complaint and draws all inferences in favor of Chepurko as the non-moving party. See Bielanski v. County of Kane, 550 F.3d 632, 633 (7th Cir. 2008).

         The United States Congress adopted the Renewable Fuel Standard program (“RFS”) to improve the nation's renewable energy industry and to reduce greenhouse gas emissions. The program encourages the production and use of renewable fuel in the United States. The Environmental Protection Agency (“EPA”) was charged with developing, implementing, and enforcing the program through various regulations (Filing No. 152 at 7). The RFS 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 RFS 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. Id. at 7-8.

         Renewable fuel producers have valid RINs only if their claim to the EPA to create the RINs is accurate and meets the regulations established by the EPA. Generating RINs for a volume of biodiesel that was not actually produced in compliance with EPA regulations is illegal. Generating RINs is permissible only based on renewable fuel and if the production process used to make that fuel meets 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 material 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 stringent requirements of the RFS program. Id. 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. Id. at 8-9.

         To track RIN transfers, the EPA developed a system called 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 anyone else who engages 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. Id. at 9- 10.

         The EPA has established regulations to regulate 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 (Filing No. 152 at 10-11). When individuals violate the law or regulations, the EPA issues a “notice of violation” to the individual. Id. at 12. The EPA pursues enforcement actions against renewable fuel producers and importers that generate invalid RINs. Id. at 7.

         Before filing this lawsuit, Chepurko contacted the Government on October 11, 2011, to disclose information about false claims that had been submitted to the Government. Between October 2011 and April 2012, Chepurko voluntarily disclosed to the Government through written disclosures and in-person meetings extensive information that in turn was used as the basis for the allegations of this lawsuit. Chepurko and his counsel met with representatives of the United States Attorney's Office, the Internal Revenue Service, the EPA, the Department of Justice, and the Securities and Exchange Commission (Filing No. 152 at 3).

         Based on Chepurko's disclosures, the Government conducted criminal and civil investigations 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 pulled into the Defendants' 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. Id. at 3-4, 13.

         Defendant Imperial Petroleum, Inc. (“Imperial”) is located in Evansville, Indiana, and is the parent company of Defendant e-Biofuels, LLC (“e-Biofuels”). Located in Middletown, Indiana, e-Biofuels is the entity in this action that falsely claimed to produce biodiesel for which fraudulent RINs were created. Defendant Jeffrey Wilson was the chairman and president of Imperial. Defendant Craig Ducey was the chief executive officer of e-Biofuels, and Defendant Chad Ducey was the chief operating officer of e-Biofuels. Id. at 5-7.

         Defendant Caravan Trading, LLC (“Caravan”) is located in Ramsey, New Jersey. Caravan sold RIN-less biodiesel to e-Biofuels that e-Biofuels falsely claimed it produced. Defendant Cima Green, LLC (“Cima Green”) also is located in Ramsey, New Jersey. Defendant Joseph Furando (“Mr. Furando”) is the chief executive officer and part owner of Caravan and Cima Green. Christine Furando is married to Joseph Furando, and she also is a part owner of Caravan and Cima Green. Id. Mr. Furando and Jeffrey Wilson were criminally convicted and are presently in federal prison for their involvement in the fraudulent scheme alleged in this civil action. Id. at 5-6.

         The alleged fraudulent scheme which Chepurko disclosed to the Government, consisted of e-Biofuels claiming to manufacture biodiesel from chicken fat and other organic “feedstock”-the raw materials from which biodiesel fuel is manufactured. However, in actuality, e-Biofuels was not manufacturing biodiesel fuel in any significant quantity. Rather, it simply purchased RIN-less biodiesel from Astra Oil Company (“Astra”) via Caravan, transported the fuel to its Indiana facility, and then resold the fuel as though it had been produced at its facility (Filing No. 152 at 13).

         Between May 2010 and the summer of 2012, after separating and retiring RINs, Astra sold RIN-less fuel to Caravan. Caravan then resold the RIN-less fuel it had purchased from Astra to Imperial and e-Biofuels. Caravan also created internal records to give the impression that it was selling Imperial and e-Biofuels “feedstock” as opposed to finished biodiesel. Id. at 15. Once Imperial and e-Biofuels took possession of the RIN-less biodiesel fuel, they generated new RINs for that volume of fuel as though the biodiesel fuel had been produced at the e-Biofuels facility. The creation of new RINs for the same fuel was illegal and was made possible after Astra had stripped off the RINs and made a profit from the RINs or used the RINs to meet requirements of the federal program. Id. Imperial and e-Biofuels then either sold the fuel with the falsely generated RINs attached or separated the falsely generated RINs to sell independently. They also falsely labeled some of the biodiesel fuel before selling it. Id. at 16.

         Imperial and e-Biofuels submitted false reports and statements to the EPA, falsely registering the new RINs to conceal their scheme, to avoid paying penalties, and to obtain tax credits. Id. at 14, 17. The Defendants knowingly generated and conspired to generate invalid RINs for biodiesel for which RINs previously had been generated. Id. at 14. More than 33.5 million RINs generated by e-Biofuels were invalid because they were generated without producing any qualifying renewable fuel. The majority of these invalid RINs were transferred to others. Id. at 13. The false claims and fraudulent conduct in generating more than 33.5 million invalid biodiesel RINs was possible because of the agreement among and involvement of each of the Defendants. Id.

         This False Claims Act qui tam action, brought pursuant to 31 U.S.C. § 3729, et seq., was initiated in June 2012 under case number 1:12-cv-786-TWP-MJD. In September 2013, Caravan, Cima Green, Mr. Furando, e-Biofuels and its officers, and others were charged by the Government in a related criminal case. They were charged with conspiracy to defraud the Government, submitting false claims to the Government, making false statements under the Clean Air Act, and other criminal violations. The criminal charges were based on the same facts of this civil action. See United States v. Ducey, et. al., No. 1:13-cr-189-SEB-TAB, Docket No. 1. Jeffrey Wilson of Imperial and Craig Ducey of e-Biofuels were separately charged by the Government in another related criminal case in September 2013. That separate criminal case was based on the same facts of this civil action and included charges for false statements made to the Securities and Exchange Commission. See United States v. Wilson and Ducey, No. 1:13-cr-190-SEB-TAB, Docket No. 1.

         On August 5, 2014, Chepurko's qui tam action under case number 1:12-cv-786-TWP-MJD was consolidated under this case number (1:14-cv-377-TWP-MJD), and Chepurko's Amended Complaint was docketed (Filing No. 52; Filing No. 65). The Amended Complaint asserted three claims against Ms. Furando, Mr. Furando, e-Biofuels, Caravan, Cima Green, Imperial, Craig Ducey, Chad Ducey, Jeffrey Wilson, and others.

         On April 15, 2015, Ms. Furando personally appeared before the district court in the related criminal case as the representative of Caravan and Cima Green. Ms. Furando, on behalf of these companies, pled guilty pursuant to a written plea agreement that she had signed. See United States v. Ducey, et. al., No. 1:13-cr-189-SEB-TAB, Docket Nos. 191, 193, 194. Judgments were entered against Caravan and Cima Green, and the entities were held jointly and severally liable with the other criminal ...


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