Blue Flame Medical LLC: $456.9M Mask Wire Returned

Type: Personal protective equipment broker
Formed: March 23, 2020 (Delaware)
Principals: John Thomas and Mike Gula

Blue Flame Medical LLC was three days old when California's Department of General Services issued it a purchase order for 100 million N95 masks at $609,161,000, 75 percent payable in advance.¹ On March 26, 2020 the State Treasurer's Office wired $456,888,600 to Blue Flame's new account at Chain Bridge Bank. By 3:21 p.m. the money was on its way back.¹ Blue Flame sued the bank, lost at summary judgment and on appeal, and the Supreme Court declined to hear it.²¹³

Who ran it

The Fourth Circuit described Blue Flame's principals, John Thomas and Mike Gula, as political consultants who, when the pandemic began, had no "experience in the field of medical supplies," the "healthcare industry," or "supply chain management." In February 2020 they decided to turn to "connecting . . . medical supply companies with buyers," and they formed the company on March 23.¹ CalMatters reported that Thomas is a political strategist in Southern California and Gula a political fundraiser in Washington, and that the two had worked earlier that year for the Republican candidate challenging Representative Katie Porter.⁴

Three days before the certificate of formation was filed, an acquaintance of Thomas contacted California's State Controller, Betty Yee, about the state's interest in buying masks, and Yee put them in touch with the Department of General Services.¹

The California wire

Gula opened Blue Flame's account at Chain Bridge's McLean, Virginia office on March 23. On March 25 he called the branch manager to say that "the state of California is sending an unbelievably large wire transfer in the amount of $450 million."¹ The wire, sent through California's bank, JPMorgan Chase, landed at 11:55 a.m. on March 26. Chain Bridge put a hold on it at 12:07 p.m. A JPMorgan executive told the bank the "amount seems to be quite high for the supplies that they're purportedly paying for." A state employee called to confirm the transfer was "legitimate." At 1:37 p.m. JPMorgan said it would recall the funds; its formal Fedwire request came at 2:05 p.m., and Chain Bridge returned the money at 3:21 p.m. "PER YOUR REQUEST."¹

California then told its staff it "won't be moving forward with the vendor," declined a new agreement, and began forwarding Blue Flame's correspondence to the FBI.¹ The Washington Post reported in May 2020, as CalMatters relayed, that the Justice Department had opened a criminal investigation focused on the California and Maryland contracts.⁴ We found no charge.

Maryland

Maryland ordered masks and ventilators from Blue Flame for $12.5 million and paid half up front. In late April 2020 its procurement director wrote that "Blue Flame Medical has yet to deliver any items under this order," and the state tried to cancel the contract and asked its attorney general to look into the company.⁵⁴ Under an October 9, 2020 settlement, Blue Flame kept the $6.3 million deposit, the state kept 37 ventilators delivered in May and June, and Blue Flame delivered 1.55 million masks; neither side acknowledged wrongdoing.⁵

In an April 2020 letter to the Department of Health and Human Services' Inspector General, Representative Porter called Blue Flame "a potentially costly and burdensome middleman," a phrase the Fourth Circuit's opinion quotes.⁴¹ When congressional investigators later asked for its government contracts, Blue Flame listed 24 entities; the court counted two orders filled.¹

The lawsuit

Blue Flame sued Chain Bridge and its two top officers, John J. Brough and David M. Evinger, in the Eastern District of Virginia in June 2020, under the wire-transfer provisions of the Uniform Commercial Code and a list of state-law claims.⁶ Chain Bridge brought in JPMorgan as a third-party defendant. On September 23, 2021 the district court, Judge Leonie M. Brinkema presiding, entered judgment for the bank and its officers on every claim, and for Chain Bridge on its indemnity claim against JPMorgan.²

The Fourth Circuit affirmed on March 20, 2023 in an unpublished opinion. Blue Flame could not show it was damaged by the return of California's money, and it had no valid contract with California for the bank to interfere with. JPMorgan, the court held, had to indemnify Chain Bridge for its "loss and expenses resulting from the cancellation of the payment order."¹ Blue Flame petitioned the Supreme Court; Chain Bridge and JPMorgan waived their right to respond, and the Court denied the petition on October 2, 2023.⁷³

The SBA's PPP loan file lists no loan to Blue Flame Medical.⁸

Blue Flame Medical LLC

Who ran it

The California wire

Maryland

The lawsuit

Sources

Notes