Complaint — United States ex rel. Blockquote, Inc. v. Topy America, Inc. (No. 3:24-cv-00028, E.D. Ky.)
Summary
A False Claims Act qui tam complaint in United States of America ex rel. Blockquote, Inc. v. Topy America, Inc., No. 3:24-cv-00028-GFVT, filed under seal April 1, 2024 as Doc 1 in the U.S. District Court for the Eastern District of Kentucky. The relator alleges that Topy America, a subsidiary of Japanese company Topy Industries, Ltd., received forgiveness of a Second Draw PPP loan of $2 million approved by WesBanco Bank on January 23, 2021, for which it reported 284 employees. The complaint argues that SBA affiliation rules required counting Topy Industries' employees, which it says would exceed the 300-employee limit for Second Draw funding. It pleads violations of 31 U.S.C. § 3729(a)(1)(A) and seeks treble damages, civil penalties, a relator's share and a jury trial. Counsel from Bracker & Marcus LLC submitted it.
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“Complaint — United States ex rel. Blockquote, Inc. v. Topy America, Inc. (No. 3:24-cv-00028, E.D. Ky.).”
Original at archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/complaint-no-3-24-cv-00028-dkt-1-e-d-ky-1ed29a8416/
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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF KENTUCKY
FRANKFORT DIVISION
UNITED ST ATES OF AMERICA )
ex rel. BLOCKQUOTE, INC, )
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COMPLAINT
1. Relator Blockquote, Inc. ("Relator") brings this action on behalf of itself and
the United States of America against defendant Topy America, Inc. for a violation
of the federal False Claims Act, 31 U.S.C §§ 3729 et seq.
2. This action seeks to recover funds that were loaned to Defendant through
the federal Government's Paycheck Protection ProgTam ("PPP") and forgiven by
the Governn1ent as a result of false applications.
3. Topy America Inc., a subsidiary of Japanese company Topy lndush·ies,
Ltd., received forgiveness for a Second Draw PPP loan of $2 million.
4. Under the SBA's affiliation rules-which were clarified in May 2020 to
include domestic and foreign affiliates -Topy America should have included the
thousands of employees of Topy Industries when evaluating its eligibility for the
loan. Had it done so, Topy America and its affiliates would have exceeded the
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300-employee limit for Second Draw PPP funding.
JURISDICTION AND VENUE
5. This Court has jurisdiction over this action pursuant to 31 U.S.C. § 3732(a)
and 28 U.S.C. §§ 1331, 1345.
6. Venue is proper in this district under 28 U.S.C. §§ 1391(b) and 31 U.S.C. §
3732(a), as the defendant resides or transacts business in this jurisdiction and
violations of the False Claims Act described herein occurred in this dish·ict.
PARTIES
7. Defendant Topy America, Inc. is a steel wheel manufacturer for passenger
cars and light h·ucks. It has a principal address of 980 Chenault Road, Frankfort,
KY 40601.
8. Topy America's website states that it is "a privately owned company and
is a subsidiary of Topy Industries, Ltd. in Japan." Topy America was founded in
2007 as a merger of three Topy Industries subsidiaries.
9. Topy Indush·ies, Ltd. is a Japanese company. Its principal office is at Art
Village Osaki Cenh·al Tower, 1-2-2 Osaki, Shinagawa-ku, Tokyo, Japan.
10. According to a 2022 report issued by Topy lndustries, it had 6,153
employees in 2020 and 5,897 employees in 2021.
11. According to this same report, 100% of voting rights in Topy America, Inc.
was held or owned by Topy Industries.
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12. At the time of its PPP loan, the majority of Topy America's board of
directors was made up of members of Topy Industries. Tn its 2020 annual report,
filed with the Kentucky Secretary of State on March 15, 2021, four of the six of
Topy America's directors were Katsuyoshi Tanaka (Topy Industries General
Manager, Steel Division), Masahiro Abe (Topy lndush·ies General Manager,
Engineering Administration Department), Koji Nanayama (Topy lndush'ies
General Manager, Wheel Division), and Yoichi Tomiyasu (role unknown, listing
Topy Industries address).
13. Blockquote, Inc. is a cmnpany based in California that produces public
interest research, news reporting and investigations.
THE PAYCHECK PROTECTION PROGRAM
14. During the COVID-19 pandemic, Congress passed the Coronavirus Aid,
Relief, and Economic Security Act ("CARES Act"). Section 1102 of the CARES
Act contains a progran1 called the Paycheck Protection Program ("PPP"), a
program administered by the U.S. Small Business Administration ("SBA") to
provide economic relief to small businesses nationwide adversely impacted by
the coronavirus pandemic.
15. Section 1102 of the CARES Act temporarily permitted SBA to guarantee
100% of the PPP loans. Section 1106 of the CARES Act provided for forgiveness
of up to the full principal amount of qualifying loans guaranteed under the PPP.
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16. The CARES Act gives lenders delegated authority to process loan
applications for PPP funding. SBA allowed lenders to rely on certifications of the
borrowers in order to determine eligibility of the borrower and use of loan
proceeds, and to rely on specified documents provided by the borrower to
determine qualifying loan amount, and eligibility for loan forgiveness.
17. The Economic Aid Act (P.L. 116-260, in the Consolidated Appropriations
Act of 2021), authorized and funded a Second Draw PPP Loan program.
18. For Second Draw PPP Loans, lenders were compensated by the federal
government via processing fees based on the balance of the financing
outstanding at the time of final disbursement, in the amount of five (5) percent
for loans of more than $50,000 and not more than $350,000, and in the amount of
three (3) percent for loans above $350,000.
19. Each borrower certified on the Second Draw loan applications that they
were eligible to receive the loans under the program guidelines and that their
applications and supporting documentation were accurate.
20. Borrowers were able to seek forgiveness of the loans if the funds were
used for eligible payroll costs, payments on business mortgage interest
payments, rent, or utilities.
FACTUAL ALLEGATIONS
21. Topy America, Inc. was approved for a First Draw PPP loan of $5,332,989
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by WesBanco Bank on April 9, 2020. It reported 372 jobs. The loan, plus interest,
was forgiven.
22. Topy America, Inc. was approved for a Second Draw PPP loan for the
maximum $2 million by WesBanco Bank on January 23, 2021. It reported 284
employees. The loan, including interest, was forgiven, a total of $2,021,151.
23. Version 1 of the PPP Second Draw Borrower Application Fann, effective
January 8, 2021, required the applicant to state "Number of Employees
(including affiliates, if applicable; 1nay not exceed 300)."
24. Version 1 of the Second Draw PPP Borrower Application Form, effective
January 8, 2021, required the applicant to certify in good faith that, inter alia:
a. The Applicant is eligible to receive a loan under the rules in effect
at the time this application is submitted that have been issued by
the Small Business Administration (SBA) and the Deparhnent of
the Treasury (Treasury) implementing Second Draw Paycheck
Protection Program Loans under Division A, Title J of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
and the Economic Aid to Hard-Hit Small Businesses, Nonprofits,
and Venues Act (the Paycheck Protection Program Rules).
b. The Applicant, together with its affiliates (if applicable) ...
employs no more than 300 employees ...
c. I further certify that the information provided in this application
and the information provided in all supporting documents and
forms is true and accurate in all material respects. I understand
that knowingly making a false statement to obtain a guaranteed
loan from SBA is punishable under the law, including under 18
USC 1001 and 3571 by imprisonment of not more than five years
and/ or a fine of up to $250,000; under 15 USC 645 by
imprisonment of not more than two years and/ or a fine of not
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more than $5,000; and, if submitted to a federally insured
institution, under 18 USC 1014 by imprisonment of not more than
thirty years and/ or a fine of not more than $·t,000,000.
25. Topy America must have made these certifications in order to apply for
and receive PPP funds.
26. Some or all of the above PPP certifications were false when made by Topy
America because it failed to adequately consider its affiliation with Topy
Industries, its parent company with thousands of employees.
A. THE AFFILIATION RULES
27. A business was eligible for a Second Draw PPP Loan if the business had
300 or fewer employees or 1net another limited exception, none of which apply to
Topy America.
28. When multiple entities are operated under common ownership or
management, the SBA generally applies" affiliation rules" that require the
various entities to consolidate their employee count when evaluating their loan
eligibility.
29. Under the Interim Final Rule published and effective May 21, 2020,
"Paycheck Protection Program-Treatment of Entities With Foreign Affiliates,"
the SBA clarified that:
SBA' s affiliation rules provide that in determining an entity's
number of employees, employees of the entity "and all of its
dornestic and foreign affiliates" are included. As a result, in most
cases, a borrower is considered together with its U.S. and foreign
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affiliates for purposes of determining eligibility for the PPP .... To
provide further clarification of this methodology, SBA issued
guidance on May 5, 2020 (FAQ 44) 1 stating that an applicant must
count all of its employees and the employees of its U.S. and foreign
affiliates, absent a waiver of or an exception to the affiliation rules.
85 Fed. Reg. 30835, 30836.
30. The Interim Final Rule, Section I, concluded, unequivocally, that "If an
applicant, together with its domestic and foreign affiliates, does not meet the 500-
employee or other applicable PPP size standard, it is not eligible for a PPP loan."
Id.
31. The Interim Final Rule repeated this requirement again in Section II:
Therefore, to calculate the number of employees of an entity for
purposes of determining eligibility for the PPP, an entity must
include all employees of its domestic and foreign affiliates, except in
those limited. circumstances where the affiliation rules expressly do
not apply to the entity. Any entity that, together with its domestic
and foreign affiliates, does not meet the 500-employee or other
applicable PPP size standard is therefore ineligible for a PPP loan.
Id. at 30836-37 (footnote omitted).
32. This foreign affiliation rule applied. to all PPP loans applied for on or after
May 5, 2020. Id.
33. The Second Draw PPP program adopted, in relevant part, these same
affiliation rules, except that the employee count was reduced frmn 500 to 300, as
was consistent with the change in the general eligibility requirements. 86 Fed.
1 https:/ /home. treasury.gov/ system/ files/136/Paycheck-Protection-Program-
Prequently-Asked-Questions.pdf
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Reg. 3712, 3714-15 (January 12, 2021), codified in 13 C.F.R. § 121.
B. TOPY AMERICA WAS AFFILIATED \.'\TITH TOPY INDUSTRIES
34. Topy America and Topy Indusb·ies qualify as" affiliates" under the SBA' s
Affiliation Rules for PPP Loans,2 codified at 13 C.F.R. § 121.301(£), under the
ownership test.
35. The" affiliation based on ownership" test states that:
For determining affiliation based on equity ownership, a concern is
an affiliate of an individual, concern, or entity that owns or has the
power to control more than 50 percent of the concern's voting
equity. If no individual, concern, or entity is found to control, SBA
will deem the Board of Directors or President or Chief Executive
Officer (CEO) (or other officers, managing members, or partners
who control the management of the concern) to be in control of the
concern.
36. At all relevant times, as discussed above, Topy America was wholly
owned by Topy Industries, which had 100% of the concern's voting equity.
C. AFFILIATION RULE WAIVER REQUIREMENTS
37. Accordingly, to avoid their affiliation with one another, Topy America or
Topy Industries would have to meet one of three affiliation rule waiver
requirements.
38. Pursuant to 86 FR 3712, 3714-15 (Jan. 14, 2021), the affiliation rules are
waived under the PPP program for any of the following three reasons: (1) any
2https://www.sba.gov/ document/ support-affiliation-rules-paycheck-
protection-progra1Tl
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business concern with less than 300 employees that, as of the date on which the
loan is funded, is assigned a North American lndush·y Classification System
(NAICS) code beginning with the digits 72; (2) any business concern operating as
a franchise that is assigned a franchise identifier code by the U.S. SBA; and (3)
any business concern that "receives financial assistance from a company licensed
under section 301 of the Small Business Investment Act of 1958," i.e., a "small
business inveshnent cornpany." "Financial assistance" includes any type of
financing listed in 13 C.F.R. § 107.50, including loans and equity. Paragraph
7(a)(36)(D)(iv) of the Small Business Act (15 U.S.C. 636(a)(36)(D)(iv)).
39. Upon information and belie£, none of these waivers apply. Topy
America - an auto parts manufacturer- was not assigned a NAICS code for a
food and beverage business, nor has it been assigned a franchise identifier code.
It is also extremely unlikely that a company held by a multinational
conglomerate would have applied for SBIC lending, and Relator has found no
evidence that it had.
D. APPLICATION OF THE ELIGIBILITY TEST
40. Eligibility under the Second Draw PPP loan program is simple: have 300
employees or fewer, including affiliates. Revenue and alternative size standards
were not considered.
41. Notably, in April 2020, Topy America reported 372 jobs when applying for
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its First Draw loan, although it is feasible that it lost 88 employees, nearly one
quarter of its workforce, during the subsequent nine months of the pandemic.
42. Regardless, when determining eligibility, Topy America should have
included the employees of its parent company, Topy Industries, a massive
company with well over 5,000 employees in 2021.
43. Although this number includes employees of Topy America, as well as
employees of subsidiaries of subsidiaries, Topy Indush·ies and its other direct
subsidiaries would need to only collectively employ 17 people for Topy
America-claiming 284 employees-to have exceeded the 300-employee limit
and to have been ineligible for Second Draw PPP funding, which it most
assuredly did.
CONCLUSION
44. Topy America was a part of a multinational conglomerate that had no
need for the $2 n1illion in PPP funds it received on the Second Draw (let alone
the $5.3 1nillion that it received on the First Draw). Nor, for this same reason, was
it eligible for the funds.
45. Topy America should be required to repay the more than $2 million it
received in PPP loans and interest that was forgiven by the federal government,
processing fees, plus penalties.
COUNT!
VIOLATIONS OF 31 U.S.C. § 3729
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FALSE CLAIMS ACT
46. Relator hereby incorporates and realleges all other paragraphs as if fully
set forth herein.
47. As set forth above, Defendant knowingly presented or caused to be
presented false or fraudulent claims for payment or approval, in violation of 31
U.S.C. § 3729(a)(1)(A).
48. As set forth above, Defendants knowingly made, used, or caused to be
made or used, false records or statements material to numerous false claims, in
violation of the False Claims Act, 31 U.S.C. § 3729(a)(l )(B).
49. Due to Defendant's conduct, the United States Government has suffered
substantial monetary damages and is entitled to recover treble damages and a
civil penalty for each false claim, record, or statement. 31 U.S.C. § 3729.
50. Relator is entitled to reasonable attorneys' fees, costs, and expenses. 31
U.S.C. § 3730(d)(l).
PRAYER FOR RELIEF
WHEREFORE, Relator prays for judgment against Defendant:
(a) awarding the United States treble damages sustained by it for each of
the false claims;
(b) awarding the United States a maximum. civil penalty for each of the
false claims and statements;
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(c) awarding Relator the maximum relator's share of the proceeds of this
action and any alternate remedy or the settlement of any such claim;
(d)awarding Relator litigation costs and reasonable attorneys' fees and
expenses; and
(e) granting such other relief as the Court may deem just and proper.
DEMAND FOR JURY TRIAL
Relator hereby respectfully dernands trial by jury on all issues and counts
triable as of right before a jury.
~son Marcus (applying for pro /we vice)
Georgia Bar No. 949698
Bracker & Marcus LLC
3355 Lenox Road, Suite 660
Atlanta, Georgia 30326
Telephone: (770) 988-5035
Facsimile: (678) 648-5544
Jason@fcacounsel.conr
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