Complaint — David Jones v. Victory Automotive Group, LLC (No. 8:21-cv-01742, M.D. Fla.)

Summary

A qui tam complaint under the False Claims Act, 31 U.S.C. § 3729 et seq., filed under seal July 19, 2021 as Document 1 in No. 8:21-cv-01742-CEH-UAM in the U.S. District Court for the Middle District of Florida, Tampa Division. Relator David Jones sues Victory Automotive Group, LLC, its CEO Jeffrey Eugene Cappo, Downton Ford Sales and Cappo Management dealership entities. The complaint alleges that the defendants certified that the corporate defendants were eligible for PPP loans and concealed their obligation to repay them, and that the corporate defendants collectively employ approximately 2,602 employees. It seeks treble damages, civil penalties, a relator share under 31 U.S.C. § 3730(d) and a jury trial. It is dated July 12, 2021 and submitted by R. Scott Oswald of The Employment Law Group, P.C.

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Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 2 of 28 PagelD 2

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

UNITED STATES OF AMERICA
ex rel. DAVID JONES

11250 Homewood Lane
Auburn, California 95603

Plaintiff,
VICTORY AUTOMOTIVE GROUP, LLC

Registered Agent:

Eric E. Cappo

46352 Michigan Avenue
Canton, Michigan 48188

-and-
JEFFREY EUGENE CAPPO

46352 Michigan Avenue
Canton, Michigan 48188

-and-
CAPPO MANAGEMENT XXV, LLC

Registered Agent:

Eric Eugene Berglands-Cappo
8442 US Highway 19

Port Richey, Florida 34668

-and-

DOWNTON FORD SALES, CAPPO
MANAGEMENT IX, INC., CAPPO
MANAGEMENT XII, INC., CAPPO
MANAGEMENT XXIII, INC., CAPPO

Case No.

Complaint for Violations of the
Federal False Claims Act, 31
U.S.C. § 3729 et seq.

FILED UNDER SEAL
PUSUANT TO 31 U.S.C. §
3730(b)(2)

Jury Trial Demanded
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 3 of 28 PagelD 3

MANAGEMENT XXVI, INC., CAPPO
MANAGEMENT XXVII, INC., CAPPO
MANAGEMENT XXVIII, INC., CAPPO
MANAGEMENT XXIX, INC., CAPPO
MANAGEMENT XXXI, INC., CAPPO
MANAGEMENT XXXIII, INC., CAPPO
MANAGEMENT XXXIV, INC., CAPPO
MANAGEMENT XXXV, INC., CAPPO
MANAGEMENT XL, INC., CAPPO
MANAGEMENT XLI, INC., CAPPO
MANAGEMENT XLY, INC., CAPPO
MANAGEMENT XLVI, INC., CAPPO
MANAGEMENT XLVIII, INC., CAPPO
MANAGEMENT XLIX, INC., CAPPO
MANAGEMENT LI, INC., CAPPO
MANAGEMENT LIII, INC., & CAPPO
MANAGEMENT LIV, INC.

Registered Agent:

InCorp Services, Inc.

5716 Corsa Avenue, Suite 110
Westlake Village, California 91362

-and-

CAPPO MANAGEMENT, INC., CAPPO
MANAGEMENT XVIII, INC., CAPPO
MANAGEMENT XX, INC., CAPPO
MANAGEMENT XXII, INC., CAPPO
MANAGEMENT XXIV, INC., & CAPPO
MANAGEMENT XXXII, INC.

Registered Agent:

Rodney A. Fields, Esq.

620 Market Street, Floor 5
Knoxville, Tennessee 37902

-and-

CAPPO MANAGEMENT II, INC, CAPPO
MANAGEMENT VI, INC., CAPPO
MANAGEMENT XVII, INC., & CAPPO
MANAGEMENT XXX, INC.,

Registered Agent:
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 4 of 28 PagelD 4

Eric E. Cappo
46352 Michigan Avenue
Canton, Michigan 48188

-and-

CAPPO MANAGEMENT VII, INC. & CAPPO
MANAGEMENT XLIV, INC.

Registered Agent:

InCorp Services, Inc.

176 Mine Lake Court, Suite 100
Raleigh, North Carolina 27615

-and-

CAPPO MANAGEMENT XLVI, INC. &
CAPPO MANAGEMENT LII, INC.

Registered Agent:

InCorp Services, Inc

44 School Street, Suite 505
Boston, Massachusetts 02108

-and-
CAPPO MANAGEMENT X, INC.

Registered Agent:

Susan Barker

4901 West McGalliard Road
Muncie, Indiana 47304

-and-
CAPPO MANAGEMENT XV, INC.
Registered Agent:
David A. Jesse
625 Burr Oak Drive
Tipp City, Ohio 45371

-and-

CAPPO MANAGEMENT XXXVII, INC.
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 5 of 28 PagelD 5

Registered Agent:

CT Corporation Systems

2 North Jackson Street, Suite 605
Montgomery, Alabama 36104

-and-
CAPPO MANAGEMENT XXXVIII, INC.

Registered Agent:

CT Corporation Systems
1999 Bryan Street, Suite 900
Dallas, Texas 75201

-and-

CAPPO MANAGEMENT L, INC.
Registered Agent:
InCorp Services, Inc.
99 Washington Avue, Suite 805A
Albany, New York 12210

Defendants.
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 6 of 28 PagelD 6

I. INTRODUCTION

1 Qui tam Relator David Jones, by his attorney, individually and on behalf of the
United States of America, files this Complaint against Defendants Victory Automotive Group,
Downton Ford Sales, Cappo Management, Inc., Cappo Managements I], VI, VII, LX, X, XII. XV.
XVII, XX, XXII-XXXV, XXXVII, XXVIII, XL, XLI, and XLIV- LIV (collectively “Corporate
Defendants”) and Jeffrey Eugene Cappo (all, collectively, “Defendants”) to recover damages,
penalties, and attorneys’ fees for violations of the Federal False Claims Act, 31 U.S.C. §§ 3729-
32 (“FCA” or “False Claims Act”).

2. Defendants violated the FCA by certifying that Corporate Defendants were
eligible to receive Paycheck Protection Program (“PPP”) loans and knowingly concealed
Corporate Defendants’ obligation to repay those loans. These certifications and acts of
concealment were a material fact relied upon by the Small Business Administration (“SBA”) in
approving the loan applications and loan forgiveness applications.

3. Defendants are liable for: (1) the amount of first draw PPP funds received by
Victory Automotive Group for which it was ineligible; (2) the amount of first draw PPP funds
received by the Corporate Defendants as a corporate group over $20 million to the extent they
have certified authorized use of those funds when applying for forgiveness or for second draw
loans; (3) the amount of second draw PPP funds received by the Corporate Defendants to the
extent they have certified authorized use of first draw funds when applying for second draw
loans; and (4) the full amount of loan processing fees paid by the SBA to Lenders for loans

disbursed and/or forgiven due to the fraudulent conduct alleged herein.
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 7 of 28 PagelD 7

Il. JURISDICTION AND VENUE

4. This Court has subject matter jurisdiction over this action pursuant to 31 U.S.C. §
3732(a), 28 U.S.C. § 1331, and 28 U.S.C. § 1367.
5. This Court has personal jurisdiction over the Defendants pursuant to 31 U.S.C. §
3732(a) because the corporate defendants conduct business within this judicial district.

6. Venue is proper in this Court under 28 U.S.C. § 1391(c) and 28 U.S.C. 2732(a)
because the Defendants maintain an office and conduct business in this judicial district.

7. Relator Jones is the “original source” of this information within the meaning of 31

U.S.C. § 3730(e)(4)(B), and to his knowledge of the information contained herein has not been

publicly disclosed.

Ill. THE PARTIES

8. Relator Jones is a citizen of the United States and a resident of Auburn,
California.
9. Jones was hired by Victory Automotive Group as Corporate Finance Director in

or around March 2013.

10... _ In 2014, Jeffrey Cappo promoted Jones to General Manager of Auburn Honda,
assumed name of Cappo Management XII, Inc.

11. Inor around August 2020, Jones was terminated.

12. Defendant Victory Automotive Group (“Victory HQ”) is a limited liability
company incorporated in Michigan. It acts as the de facto corporate headquarters for the
association of forty-three car dealerships across the country.

13. Defendant Jeffrey Eugene Cappo is a resident of Michigan.
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14. Jeffrey Cappo is the CEO of Victory Automotive Group.

15, Defendants Downton Ford Sales, Cappo Management, Inc., Cappo Managements,
II, VI, VII, IX, X, XII, XV, XVII, XX, XXI-XXXV, XXXVI. XXVIII, XL, XLI, and XLIV-
LIV (“Dealership Entities”) are entities incorporated across 12 states, with Jeffrey Cappo listed
as an officer or registered agent for each entity.

16. Between all affiliate companies owned or managed by Jeffrey Cappo, Corporate
Defendants collectively employ approximately 2,602 employees.

17. The Dealership Entities operate under fictitious names as car dealerships. Each
Dealership Entity operates under a Dealer Agreement or a Dealer Sales and Service Agreement
with the carmaker(s) for whom they sell new cars.

18. As the General Manager for Cappo Management XII, Inc. (doing business as
Auburn Honda), Relator Jones was an employee of Victory HQ and received paychecks from
Victory HQ, not the Dealership Entity. Each Dealership Entity has a similar management
structure, with upper management of each dealership being employed and paid directly by
Victory HQ.

19. Victory HQ does not function as a dealership and does not sell cars directly. It

does not have a Dealer Agreement or a Dealer Sales and Service Agreement with any carmaker.

IV. LEGAL BACKGROUND

A. The Federal False Claims Act (“FCA”)
20. The False Claims Act imposes liability on any person who knowingly presents or
causes to be presented a false or fraudulent claim for payment or approval. 31 U.S.C. §

3729(a)(1)(A).
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21. The False Claims Act imposes liability on any person who knowingly makes,
uses, or causes to be made or used a false record or statement material to a false or fraudulent
claim. 31 U.S.C. § 3729(a)(1)(B).

22. ‘The False Claims Act imposes liability for knowingly making, using, or causing
to be made or used, a false record or statement material to an obligation to pay or transmit money
or property to the Government, or knowingly concealing or knowingly and improperly avoiding
or decreasing an obligation to pay or transmit money or property to the government. 31 U.S.C. §
3729(a)(1)(G).

23. The term “knowingly” as used in the FCA means that a person, with respect to
information, (i) has actual knowledge of the information, (ii) acts in deliberate ignorance of the
truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the
information. 31 U.S.C. § 3729(b). No proof of specific intent to defraud is required to show that
a person acted knowingly under the FCA. /d.

24. Any person who violates the FCA is liable for civil penalties between $11,665.00
and $23,331.00 per false claim prior to November 2, 2015, as adjusted for inflation, plus three
times the amount of damages that the Government sustains as a result of the defendant’s actions.
31 U.S.C. § 3729(a), 28 C.F.R. § 85.5.

B. The Paycheck Protection Program (“PPP”)

25. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is a law
intended to address the economic fallout of the COVID-19 pandemic in the United States.

26. |The CARES Act resulted in, inter alia, the Paycheck Protection Program.

Coronavirus Aid, Relief, and Economic Security Act, No. 116-136 (March 27, 2020).
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 10 of 28 PagelD 10

27. The PPP is a loan program designed to provide eligible businesses low-interest
rate loans guaranteed by the Small Business Administration (SBA) with support from the
Department of the Treasury.

28. This program provides small businesses with funds to pay up to 24 weeks of
payroll costs including benefits.

29. The PPP is similar to existing SBA Loan Programs. However, the CARES Act
suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere, as
defined in the Small Business Act. 15 U.S.C. § 632(h).

30. The PPP section of the CARES Act expanded eligibility for SBA loans beyond the
limitations of the Small Business Act. 15 U.S.C. §§ 632, 636.

3, The following entities affected by Coronavirus (COVID-19) may be eligible:

i. Any small business concern that meets SBA’s size standards (either the
industry based size standard or the alternative size standard);

ii. Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans
organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small
Business Act) with the greater of:

a. 500 employees, or
b. That meets the SBA industry size standard if more than 500:

ili. | Any business with a [North American Industry Classification System
(“NAICS”)] Code that begins with 72 (Accommodations and Food Services)
that has more than one physical location and employs less than 500 per
location;

iv. Sole proprietors, independent contractors, and self-employed persons.
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 11 of 28 PagelD 11

32. The size of a business concern is determined under the SBA’s size standards as
they apply to the “concern whose size is at issue and all of its domestic and foreign affiliates.”
13 C.F.R. § 121.301(f)(6) (emphasis added).

33. Entities that are applicants for a PPP loan submit their Borrower Application
Form to a federally insured depository institution, federally insured credit union, or a Farm
Credit System (“Lender”) which processes the loan application and funds the loan.

34. The SBA guarantees 100% of the outstanding balance, and that guarantee is
backed by the full faith and credit of the United States. 15 U.S.C. § 636(a)(2)(F).

as For its work to process the application and fund the loan, the SBA pays the
Lender a processing fee based on the size of the loan funded by the Lender. SBA will pay lenders
fees for processing First Draw PPP loans in the following amounts: Five (5) percent for loans of
not more than $350,000; Three (3) percent for loans of more than $350,000 and less than
$2.000,000; and One (1) percent for loans of at least $2,000,000. 15 U.S.C. § 636(a)(36)(P).

36. To be eligible for loan forgiveness, borrowers must complete SBA Form 3508 or
SBA Form 3508EZ to calculate eligible payroll and nonpayroll costs.

Ss Borrowers must certify that the dollar amount for which forgiveness is requested:

i. | Was used to pay costs that are eligible for forgiveness (payroll costs to
retain employees; business mortgage interest payments; business rent or
lease payments; or business utility payments):

ii. _ Includes all applicable reductions due to decreases in the number of full-
time equivalent employees and salary/hourly wage reductions;

iii. Includes payroll costs equal to at least 60% of the forgiveness amount; and
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 12 of 28 PagelD 12

iv. Does not exceed eight weeks’ worth of 2019 compensation for any owner-
employee or self-employed individual/general partner, capped at $15,385
per individual or, if a 24-week covered period applies, does not exceed 2.5
months’ worth of 2019 compensation for any owner-employee or self-
employed individual/general partner, capped at $20,833 per individual.
SBA Form 3508 “Paycheck Protection Program Loan Forgiveness Application” (June
2020).
38. Additionally, borrowers must certify that:

i. They have submitted to the Lender the required documentation verifying
payroll costs, the existence of obligations and service (as applicable) prior
to February 15, 2020, and eligible business mortgage interest payments,
business rent or lease payments, and business utility payments; and

ii. The information provided in the application and the information provided
in all supporting documents and forms is true and correct in all material
respects.

Id.
39. — Anentity can also be eligible for a PPP loan as a small business concern if, as of
March 27, 2020:
a. The maximum tangible net worth of the business is not more than $15 million;
and
b. The average net income after Federal income taxes (excluding any carry-over
losses) of the business for the two full fiscal years before the date of the

application is not more than $5 million.
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Small Bus. Admin, “Paycheck Protection Program Loans Frequently Asked Questions

(FAQs)” (June 25, 2020).

40. In December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits,
and Venues Act modified and extended the PPP. Consolidated Appropriations Act, 2021, Pub. L
116-260, tit. III, sec. 311 (to be codified as amended at 15 U.S.C. § 636(a)(37)).

4]. To be eligible to receive a second draw loan, an entity must employ not more than
300 employees or not more than 300 employees per location for a discrete group of industries. 15
U.S.C. § 636(a)(37)(A)(iv).

42. In addition, a borrower must have “experienced a revenue reduction in 2020
relative to 2019” of at least 25% in order to be eligible. Paycheck Protection Program Second
Draw Loans, 86 Fed. Reg. 3,712, 3,713 (Jan. 14, 2021) (to be codified at 13 C.F.R. pts. 120,
121).

43. The Second Draw of the PPP does not allow for any additional size standards by
which an entity can be eligible to receive a loan and requires that the eligibility standard must be
met by the applicant together with its affiliates.

44. To receive a Second Draw Loan, an applicant must submit SBA Form 2483-SD,
Second Draw Borrower Application Form.

45. Applicants must indicate if the Applicant or any of the Applicant’s owners have
common management with or own another business.

46. The authorized representative of the Applicant must certify that the applicant is
eligible to receive a Second Draw Loan and that together with its affiliates, the Applicant

employs no more than 300 employees.
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47. The authorized representative of the Applicant must also certify in good faith that
before the Second Draw Loan is disbursed that Applicant will have used the full loan amount of
the first draw loan only for eligible expenses.

48. | The SBA adjusted the fees to be paid to lenders for the processing Second Draw
PPP Loans to the following amounts:

(i) for a Second Draw PPP Loan of up to (and including) $50,000, in an amount

equal to the lesser of:

(A) 50 percent of the balance of the financing outstanding at the time of
disbursement of the loan; or

(B) $2,500; and

(ii) for a Second Draw PPP Loan of more than $50.000, in an amount that is:

(A) 5 percent of the balance of the financing outstanding at the time of
disbursement of the loan for a loan up to (and including) $350,000; and
(B) 3 percent of the balance of the financing outstanding at the time of
disbursement of the loan for a loan above $350,000.
SBA Interim Final Rule, “Business Loan Program Temporary Changes; Paycheck Protection
Program Second Draw Loans” 86 Fed. Reg. 3,712, 3,721-3,722 (Jan. 14, 2021) (to be codified at
13 C.F.R. §§ 120-121).
C. SBA Exceptions and Limitations on Affiliation and Loan Eligibility

49, SBA Form 2483, which all applicants must submit to be considered for a PPP
loan, requires an indication of Yes or No to the question: “Is the Applicant or any owner of the
Applicant an owner of any other business, or have common management with, any other

business? If yes, list all such businesses and describe the relationship on a separate sheet
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 15 of 28 PagelD 15

identified as addendum A.” SBA Form 2483, “Paycheck Protection Program Borrower
Application Form” (April 2020).

50. Agency guidance specified that “applicants in SBA’s Business Loan Programs
(which include the PPP) are subject to the affiliation rule contained in 13 CFR § 121.301.” SBA
Interim Final Rule “Business Loan Program Temporary Changes; Paycheck Protection
Program.” 85 Fed. Reg. 20,819 (April 15, 2020).

51. Entities that have the power to control another are affiliates of one another.
Entities that are controlled by the same third party are also affiliates of each other as well as of
the third party. 13 C.F.R. § 121.301(f).

52. Entities are affiliates of one another if a principal of an entity controls the
management of another. Affiliation between entities also arises if a single individual controls the
management or Board of Directors of those entities. 13 C.F.R. § 121.301(f)(3).

53. | The CARES Act waived the § 121.103 affiliation provisions for a limited
category of business concerns: businesses in the Accommodation and Food Services sector as
determined by their North American Industry Classification System (NAICS) code: businesses
operating as a franchise that are listed in the SBA’s Franchise Directory; and businesses receiving
financial assistance from a licensed Small Business Investment Company (SBIC). 15 U.S.C.
§636(a)(36)(D)(iv).

54. | The Economic Aid Act preserved these affiliation waivers for the purposes of PPP
Second Draw Loans while still applying the revised size standard. 15 U.S.C.A. §636(37)(E).

55. On the First Draw PPP Loan Borrower Application Form, the Applicant must

indicate yes or no if it is a franchise that is listed in the SBA’s Franchise Directory. The Applicant

10
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is not required to list the Franchise Identified Code issued by the SBA on this form. SBA Form
2483, “Paycheck Protection Program Borrower Application Form” (April 2020).

56. | Onthe Second Draw PPP Loan Borrow Application Form, the Applicant must list
its SBA Franchise Identifier Code if it is a franchise listed in SBA’s Franchise Directory. SBA
Form 2483-SD, “Second Draw Borrower Application Form” (March 18, 2021).

57. Agency guidance clarified the boundaries of affiliation rules as applied to PPP

loans:

[B]usinesses that are part of a single corporate group shall in no
event receive more than $20,000,000 of PPP loans in the
aggregate. For purposes of this limit, businesses are part of a single
corporate group if they are majority owned, directly or indirectly, by
a common parent.

SBA’s affiliation rules, which relate to an applicant’s eligibility for
PPP loans, and any waiver of those rules under the CARES Act,
continue to apply independent of this limitation. Businesses are
subject to this limitation even if the businesses are eligible for
the waiver-of-affiliation provision under the CARES Act or are
otherwise not considered to be affiliates under SBA’s affiliation
rules.

SBA Interim Final Rule “Business Loan Program Temporary Changes; Paycheck Protection
Program-Requirements-Corporate Groups and Non-Bank and Non-Insured Depository
Institution Lenders” 85 Fed. Reg. 26,324 at 26,325 (May 4, 2020).

58. This rule specifies that applicants have the responsibility to notify the Lender if
they have applied for, have received, or expect to received PPP loans in excess of the $20 million
limit per corporate group. “Failure by the applicant to do so will be regarded as a use of PPP

funds for unauthorized purposes.” /d. (emphasis added).
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 17 of 28 PagelD 17

59. A-similar rule exists for Second Draw PPP loans. Businesses that are part of the
same corporate group “shall in no event receive more than $4,000,000 of Second Draw PPP
Loans in the aggregate.” SBA Interim Final Rule “Business Loan Program Temporary Changes;

Paycheck Protection Program Second Draw Loans” 85 Fed. Reg. 3,712 at 3,720 (Jan. 14, 2021).

¥, FACTUAL ALLEGATIONS

60. Prior to April 8, 2020, Defendant Victory Automotive Group submitted its
Borrower Application form, SBA Form 2843 the Bank of Ann Arbor to apply for a PPP loan. To
be approved for a loan, an authorized representative of Victory HQ certified that it, as the
Applicant, was eligible to receive a PPP loan under the SBA rules at the time and by meeting the
applicable size standard.

61. Between April 7 and April 13, 2020, all Corporate Defendants were approved for

PPP loans by the same Lender, the Bank of Ann Arbor. Collectively, Corporate Defendants were

approved for over $32 million in PPP loans.

Date . Loan .
Approved Business Name Aanenint State | Zip Lender
4/7/2020 CAPPO MANAGEMENT, $660.463 | TN agane Bank of Ann
INC. Arbor
4/7/2020 CAPPO MANAGEMENT IL, $255,244 | MI asies Bank of Ann
INC. Arbor
4/8/2020 CAPPO MANAGEMENT VI, $504,633 | MI ARanD Bank of Ann
INC. Arbor
CAPPO MANAGEMENT Bank of Ann
4/7/2020 VIL, INC. $392,228 | NC 27949 cher
4/9/2020 CAPPO MANAGEMENT IX, $685.210 | CA 940i Bank of Ann
INC. Arbor
4/9/2020 CAPPO MANAGEMENT X, $401,654 | IN arse Bank of Ann
INC. Arbor
CAPPO MANAGEMENT Bank of Ann
202
4/7/2020 XIL INC, $533,270 | CA 95603 eon
CAPPO MANAGEMENT “ Bank of Ann
4/8/2020 XV._INC. $373,020 | OH 44870 Jeeta

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Page 19 of 28 PagelD 19

CAPPO MANAGEMENT Bank of Ann
2. 2
4/9/2020 XLVI LLC $762,670 | CA 94066 nehae
CAPPO MANAGEMENT Bank of Ann
4/10/2020 XLVIL LLC $685.634 | MA 2188 Agter
CAPPO MANAGEMENT Bank of Ann
4/7/2020 XLVIIL, LLC $753,677 | CA 92832 tes
CAPPO MANAGEMENT z Bank of Ann
4/9/2020 XLIX, LLC $580,515 | CA 95037 pte
4/9/2020 CAPPO MANAGEMENT L, $303.423 | NY 14424 Bank of Ann
LLC Arbor
LEC Arbor
CAPPO MANAGEMENT Bank of Ann
4/9/2020 LIL LLC $676,243 | MA 2301 Soong
CAPPO MANAGEMENT Bank of Ann
4/10/2020 LIU. LLC $750,716 | CA 93955 Agboe
CAPPO MANAGEMENT Bank of Ann
9) 2 2
4/9/2020 LIV. LLC $315,466 | CA 93955 dente
DOWNTOWN FORD Bank of Ann
2 3 5
4/7/2020 SALES $933,632 | CA 95811 hee.
VICTORY AUTOMOTIVE Bank of Ann
2
4/8/2020 GROUP. LLC $6,282,362 | MI 48188 Avie
62. Each Corporate Defendants’ application listed the corporation’s individual places

of business as its address, but the applications were filled out and submitted by the main Victory

Automotive office in Canton, Michigan.

63.

Victory Automotive Group directly employs and pays the salary of management

positions at each Dealership Entity. Jeffrey Cappo is an officer or registered agent for Victory

Automotive and each individual Dealership Entity. Victory Automotive also exercises direct

financial control over the operations of each Dealership Entity.

64.

Due to this common ownership and control, Victory Automotive and each of the

Dealership Entities are affiliates under 13 C.F.R. § 121.301.

65.

Of the Corporate Defendants, the dealerships that operate in the various states

have franchise agreements with the automobile makers for whom they sell cars. As such, the

14
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dealerships as affiliates might otherwise have failed to qualify for PPP loans due to their size but
meet the franchise exception under the CARES Act.

66. However, Victory Automotive Group does not sell cars and does not operate
under a franchise agreement. As such, Victory Automotive does not qualify for PPP funds under
any of the applicable small business size standards used by the SBA for purposes for the PPP and
does not fall into any applicable exceptions.

67. Therefore, Victory Automotive was not eligible to receive a PPP loan in the
amount of $6,282,362.

68. As aresult of Victory Automotive’s fraudulent PPP loan, the Bank of Ann Arbor
received a 1% loan processing fee from the SBA in the amount of $62,823.

69. Once each Dealership Entity received the PPP loan funds, Victory HQ removed
the funds from the Dealership accounts. From that point forward, Victory Automotive controlled
the use and disbursement of the PPP funds entirely, and the dealership management did not have
visibility into how the money was used.

70. On April 28, 2020, the SBA published an immediately effective interim final rule
that established, inter alia, a safe harbor for borrowers that had certified that the loan request was
necessary to support the ongoing operations of the Applicant. Any borrower who repaid the loan
in full by May 7, 2020, would be deemed to have made the required certification in good faith.
SBA Interim Final Rule “Business Loan Program Temporary Changes; Paycheck Protection
Program-Requirements-Promissory Notes, Authorizations, Affiliation, and Eligibility” 85 Fed.
Reg. 23,450, 23,451. (April 28, 2020).

71. In subsequent rules, the SBA extended the safe harbor deadline to May 14, 2020,

and then to May 28, 2020. See SBA Interim Final Rule “Business Loan Program Temporary

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Changes; Paycheck Protection Program-Requirements-Extension of Limited Safe Harbor With
Respect to Certification Concerning Need for PPP Loan Request” 85 Fed. Reg. 29,845 (May 19,
2020) and SBA Interim Final Rule “Business Loan Program Temporary Changes; Paycheck
Protection Program-Second Extension of Limited Safe Harbor With Respect to Certification
Concerning Need for PPP Loan and Lender Reporting” 85 Fed. Reg. 31.357 (May 26, 2020).

72. On May 4, 2020, the SBA issued an immediately effective interim final rule that
placed a cap on the amount of PPP loans a single corporate group could receive at $20 million.
The Agency specified that applicants had the responsibility to notify lenders if they had received
PPP loans in excess of this amount. SBA Interim Final Rule “Business Loan Program Temporary
Changes: Paycheck Protection Program-Requirements-Corporate Groups and Non-Bank and
Non-Insured Depository Institution Lenders” 85 Fed. Reg. 26.324, 26,325 (May 4, 2020).

73. The Agency gave notice that failure to notify lenders of loans received in excess
of this rule would be regarded as “use of PPP funds for unauthorized purposes [and would mean
that] the loan will not be eligible for forgiveness.” /d.

74. Upon information and belief, none of the Corporate Defendants withdrew or
cancelled their PPP loans with Bank of Ann Arbor due to Defendants’ corporate group receiving
PPP loans in excess of $20 million, or otherwise notified the lender that the affiliated entities
collectively received loans in excess of $20 million.

75. As such, the Corporate Defendants improperly retained approximately $5,723,775
in PPP funds over the $20 million collective cap.

76. For processing all Corporate Defendants’ PPP loans, the Bank of Ann Arbor
received a 1-5% loan processing fee per loan for processing the falsely retained PPP funds from

the SBA in the amount of at least $377,880.

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77. As of May 2021, publicly available records on FederalPay.org suggest that at least
12 of the Corporate Defendants have applied for and received forgiveness of their First Draw
PPP loans. It is Relator Jones’ understanding that all Corporate Defendants have applied for or
intend to apply for forgiveness of First Draw PPP loans.

78. On or around January 31, 2021, Cappo Management IX was approved for a
Second Draw PPP loan of $685,210 by lender Bank of Ann Arbor.

yee On or around February 6, 2021, Cappo Management XII was approved for a
Second Draw PPP loan of $533,270 by lender Bank of Ann Arbor.

80. On or around February 12, 2021, Cappo Management XXIII and Cappo
Management XXVI were approved for Second Draw PPP loans of $954,517 and $837,742
respectively by lender Bank of Ann Arbor.

81. In order to have been approved for these Second Draw loans, all four entities were
required to certify that they had received a First Draw loan and that the full amount of that loan
would have been used only for eligible expenses prior to the disbursement of the Second Draw
loan.

82. These four Cappo entities could not have truthfully certified that their First Draw
PPP loans were used for an authorized purpose in accordance with the SBA’s May 4, 2020
Interim Final Rule “Business Loan Program Temporary Changes; Paycheck Protection Program-
Requirements-Corporate Groups and Non-Bank and Non-Insured Depository Institution
Lenders” that clarified that, failure by the applicant to notify the Lender if they have applied for,
have received, or expect to received PPP loans in excess of the $20 million limit per corporate
group will be regarded as a use of PPP funds for unauthorized purposes. See 85 Fed. Reg. 26,324

at 26,325.
Case 8:21-cv-01742-CEH-UAM Document1 Filed 07/19/21 Page 23 of 28 PagelD 23

83. For processing Cappo Management IX, XII, XXIII, XX VI’s PPP loans, the Bank

of Ann Arbor received loan processing fees from the SBA in the amount of $90,322.

COUNT I
Violations of the False Claims Act, 31 U.S.C. § 3729(a)(1)(A)
Submitting False Claims for Payment
(against Victory Automotive Group, Jeffrey Cappo, and Corporate Recipient Defendants)

84. Relator Jones incorporates all the allegations set forth in the foregoing paragraphs
as though fully alleged herein.

85. The False Claims Act imposes liability on any person who knowingly presents or
causes to be presented a false or fraudulent claim for payment or approval. 31 U.S.C. §
3729(a)(1)(A).

86. Defendants knowingly presented or caused to be presented to the Small Business
Administration a claim for approval of a First and/or Second Draw PPP loan for which they were
ineligible.

87. Defendants’ knowingly false certifications on Corporate Defendants PPP loan
application were material to the government’s decision to award them First and Second Draw
PPP loans intended for small businesses in an amount exceeding $35 million. When submitting
the application, an applicant company must certify that it is eligible and that all information
included in the application form is true and accurate in all material respects.

88. But for Defendants’ submission of their false claims, the SBA would not have
approved the loans.

89. But for Defendants’ submission of their false claims, the SBA would not have

paid the Lender the processing fee of the loan applications.

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90. The United States of America has been damaged by all aforementioned
misrepresentations and failures to comply with requisite laws and regulations by paying
Defendants approximately $12,006,137.

91. Accordingly, the United States government is entitled to treble damages under the
False Claims Act, in an amount to be determined at trial, plus a civil penalty for each false claim
presented or caused to be presented by Defendants.

COUNT II
Violations of the False Claims Act, 31 U.S.C. § 3729(a)(1)(B)
Creating a False Record or Statement Material to a False Claim
(against all Defendants)

92. Relator Jones incorporates all the allegations set forth in the foregoing paragraphs
as though fully alleged herein.

93. | The False Claims Act imposes liability on any person who knowingly makes,
uses, or causes to be made or used a false record or statement material to a false or fraudulent
claim paid or approved by the United States government. 31 U.S.C. § 3729(a)(1)(B).

94. Defendants knowingly made or caused to be made false records or statements to
support a false claim submitted to the Lender and the SBA for approval of First and Second
Draw PPP loans.

95. The false records and statements Defendants made were used to support false
claims Defendants submitted to the United States government.

96. Defendants’ creation of knowingly false loan applications supported the Bank of

Ann Arbors claims to the SBA for loan processing fees for loans that were falsely or fraudulently

obtained by Defendants.

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97. The United States of America has been damaged by all aforementioned
misrepresentations and failures to comply with requisite laws and regulations by paying Bank of
Ann Arbor approximately $210,382 in loan processing fees for illegitimate PPP loans.

98. Accordingly, the United States government is entitled to treble damages under the

False Claims Act, in an amount to be determined at trial, plus a civil penalty as deemed

appropriate.
COUNT III
Violations of the False Claims Act, 31 U.S.C. § 3729(a)(1)(C)
Conspiracy to Violate the False Claims Act
(against all Defendants)
99. Relators Jones incorporates all of the allegations set forth in the foregoing

paragraphs as though fully alleged herein.

100. The False Claims Act imposes liability on any person who conspires to commit a
violation of the False Claims Act. 31 U.S.C. § 3729(a)(1)(C).

101. All defendants conspired to violate the False Claims Act.

102. As set forth more fully above, Jeffrey Cappo directed or knowingly allowed
direction to be given to Corporate Defendants to each apply for a First and/or Second Draw PPP
loan and certified or caused to be certified the applications containing false statements.

103. The United States of America has been damaged by the aforementioned
misrepresentation in a dollar amount to be determined at trial of approximately $36 million.

104. Accordingly, the United States government is entitled to treble damages under the
False Claims Act, in an amount to be determined at trial, plus a civil penalty as deemed

appropriate.

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COUNT IV
Violations of the False Claims Act, 31 U.S.C. § 3729(a)(1)(G)
Improper Avoidance of Obligation to Government
(against all Defendants)

105. Relator Jones incorporates all of the allegations set forth in the foregoing
paragraphs as though fully alleged herein.

106. The False Claims Act imposes liability on any person who knowingly makes,
uses, or causes to be made or used, a false record or statement material to an obligation to pay or
transmit money or property to the Government, or knowingly conceals or knowingly and
improperly avoids or decreases an obligation to pay or transmit money or property to the
Government. 31 U.S.C. § 3729(a)(1)(G)

107. Defendants knowingly concealed or knowingly and improperly avoided an
obligation to pay money to the government when they falsely certified compliance with the PPP
program in applying for forgiveness of their PPP loans.

108. As set forth more fully above, Defendants knowingly concealed their affiliation
and failed to return the PPP loans received in error for the purpose of decreasing their obligation
to pay money to the government.

109. But for Defendants’ concealment, the SBA would not have forgiven the Corporate
Defendants’ obligation to repay the PPP loans including interest and would not have approved
Defendants’ Second Draw PPP loans.

110. The United States of America has been damaged by the aforementioned
misrepresentations in a dollar amount to be determined at trial.

111. Accordingly, the United States government is entitled to treble damages under the

False Claims Act, in an amount to be determined at trial, plus a civil monetary penalty as deemed

appropriate.

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PRAYER FOR RELIEF

WHEREFORE, Relator Jones, acting on behalf of and in the name of the United States of
America, and on his own behalf, prays that judgment will be entered against Defendants for
violations of the Federal False Claims Act, 31 U.S.C. § 3729 e7 seq. as follows:

a) That for violations of the False Claims Act, 31 U.S.C. § 3729, et seq., this Court enter
Judgment against the Defendants in an amount equal to three times the amount of damages
the United States Government has sustained because of the Defendants’ actions, plus a civil
penalty of between $11,665 — $23,331 for each action in violation of 31 U.S.C. § 3729:

b) That Relator be awarded the maximum amount allowed pursuant to 31 U.S.C. § 3730(d),
including the costs and expenses of this action and reasonable attorneys’ fees:

c) That a trial by jury be held on all issues;

d) That, in the event the United States Government elects to intervene in and proceed with
this action, Relator be awarded between 15% and 25% of the proceeds of the action or of
any settlement in accord with 31 U.S.C. § 3730(d)(1):

e) That, in the event that the United States Government does not proceed with this action,
Relator be awarded between 25% and 30% of the proceeds of the action or of any
settlement in accord with 31 U.S.C. § 3730(d)(2);

f) That, pursuant to 31 U.S.C. § 3730(c)(5), Relator be awarded a share of any alternate
remedy that the United States Government elects to pursue;

g) That permanent injunctive relief be granted to prevent any recurrence of the False Claims
Act conduct described above for which redress is sought in this Complaint;

h) That the United States and the Relator be awarded prejudgment and post judgment interest;

and

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i) That the United States Government and Relator receive all other relief, both in law and

equity, to which they may reasonably be entitled.
JURY DEMAND

Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Relator Jones hereby

demands a jury trial.

July 12, 2021 Respectfully Submitted,

R. Scott Oswald, (Bar no. 158437)
The Employment Law Group, P.C.
1717 K St, NW, Suite 1110
Washington, D.C. 20006

(202) 261-2813

(202) 261-2835 (facsimile)
soswald@employmentlawgroup.com

Attorney for Qui Tam Relator


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