Attorney General Gurbir S. Grewal announced today that the State has intervened in a whistleblower lawsuit against Academy Bus, LLC (Academy), which advertises itself as the nation’s largest private transportation company, as well as related entities and individuals.
The Attorney General’s complaint alleges the defendants defrauded New Jersey Transit (NJT) out of more than $15 million by vastly underreporting the number of scheduled bus trips that the company missed and charging fees for hours and miles driven for bus trips that never happened.
Filed in state Superior Court in Essex County, the lawsuit alleges that Academy engaged in an “extensive multi-year, multi-million-dollar fraud” by failing to report tens of thousands of missed bus trips between April 2012 and December 2018.
The case is the highest dollar-value whistleblower lawsuit in which the State has intervened.
The Attorney General’s complaint further alleges that Academy’s fraud also “caused the riding public to suffer because Academy missed tens of thousands of bus trips on busy Hudson and South Hudson service area bus lines. Riders were delayed if not stranded.”
Those two service areas primarily cover the Hudson County waterfront, serving riders in such towns as Bayonne and Jersey City, and include the heavily used Route 119 line for commuters traveling to and from New York City.
“Most of us know how frustrating it can be to wait for a bus that doesn’t show up on time or never appears at all,” Attorney General Grewal said. “Our complaint against Academy Bus alleges that one reason for those late and missing buses has been a pervasive, multi-year fraud by Academy that not only cost riders their time but also cost NJ Transit many millions of dollars. With this lawsuit, we are seeking justice for the riding public as well as New Jersey taxpayers.”
Academy operates seven NJT bus routes in the Hudson and South Hudson service areas. The seven NJT routes Academy handles involve approximately 175,000 bus trips each year. Academy bills NJT approximately $12 million annually for its services, while NJT retains all bus fares that Academy collects along the routes.
Under its contract with NJT, Academy was required to report the number of bus trips that were missed for each bus route on a monthly basis.
An individual “trip” is when a bus travels from one end-point of a route to the other end-point of a route. NJT would then deduct an assessment for each missed trip.
Academy also charged NJT contractually-agreed upon fees for miles and hours driven along bus routes it handled for the agency. Academy could not charge fees for hours and miles driven for buses that did not run.
The complaint announced today alleges that Academy overcharged NJT in at least two ways.
First, by underreporting to NJT the number of bus trips it had missed for each month, Academy fraudulently avoided millions of dollars of missed trip deductions from the monthly invoices.
Second, Academy fraudulently billed NJT for miles and hours driven for buses that had not actually run.
The Attorney General’s complaint describes how Academy’s internal records tracked two sets of numbers – the real number of missed bus trips (which Academy labeled “RN”) and an adjusted set of false numbers, which was always significantly lower and which Academy eventually reported to NJT.
The Attorney General’s complaint quotes from text messages between Academy employees where they communicated about how much they would reduce the “RN”/real numbers before sending them to NJT.
In one instance, according to text messages quoted in the complaint, one employee proposed reducing the real number of missed trips for September 2018 from over 1800 to just 700. Another responded: “Bro bro. It’s 1800 missed, really – we are gambling with this huh?”
Academy eventually reported 804.5 missed trips to NJT for that month, allegedly defrauding NJT by failing to report over 1000 missed trips.
According to the complaint, the gap between the “real number” of missed trips and the number actually reported to NJT shrunk during periods when Academy knew NJT was actively monitoring Academy’s performance.
The complaint alleges that Academy may have missed so many trips because it was shifting drivers from the NJT routes it covered to its more profitable charter bus routes.
According to the complaint, one witness who worked as a dispatcher for Academy reported telling Academy’s President and CEO Francis Tedesco that diverting drivers would cause missed trips on NJT routes. Tedesco allegedly responded: “I don’t care about NJ Transit.”
In addition to Hoboken-based Academy and its affiliated corporate entities Academy Lines, LLC; Academy Express, LLC; Number 22 Hillside, LLC; and No. 22 Hillside Corporation, the complaint announced today names as defendants: Thomas F.X. Scullin, the Vice President and Chief Operating Officer for all of the corporate defendants; Frank DiPalma, the Controller of each of the corporate defendants; Antonio Luna, formerly an assistant manager at Number 22 Hillside, LLC and/or No. 22 Hillside Corporation, and now a part-time dispatcher; and Edward Rosario, a general manager at Number 22 Hillside, LLC and/or No. 22 Hillside Corporation.
With this complaint, Attorney General Grewal has intervened in a qui tam action filed against Academy by a former Academy Terminal Manager Hector Peralta, who worked at Academy and 22 Hillside for 14 years.
The New Jersey False Claims Act allows private parties, or relators, such as Mr. Peralta, to file lawsuits on behalf of New Jersey for violations of the False Claims Act, and to share in any recovery.
The False Claims Act provides that the Attorney General may intervene in such an action.
The complaint alleges two counts under New Jersey’s False Claims Act and one count of Unjust Enrichment, seeking treble damages, maximum civil penalties, attorneys’ fees, and costs, and disgorgement of any unlawfully obtained payments from NJT.
The State is represented in the Academy Bus matter by Deputy Attorney General and Section Chief Lara Fogel, Deputy Attorney General and Assistant Section Chief Kenneth Levine, Deputy Attorney Generals Eric Boden and Dana Vasers, all from the Government & Healthcare Fraud Section of the Division of Law’s Affirmative Civil Enforcement Practice Group, and Assistant Attorneys General Jeremy Hollander and Janine Matton of the Affirmative Civil Enforcement Practice Group.