Complaint — U.S. ex rel. Bell Hill, LLC v. Seasholtz (E.D. Cal.)
Summary
A qui tam complaint for violation of the False Claims Act, filed under seal July 6, 2020 as Document 1 in United States ex rel. Bell Hill, LLC v. John Seasholtz et al., No. 1:20-cv-00942-ADA-BAM, in the U.S. District Court for the Eastern District of California. Relator Bell Hill, LLC alleges that John Seasholtz, Sweetwood Farm Co. LLC, Mendota Land Company, Sweetwood Farm Inc. and Seasholtz Co. LLC received four PPP loans totaling $3,557,990 through Bank of the West while having access to cash and credit that made the loans unnecessary. The complaint lists loans of $472,495, $469,995, $2,000,000 and $625,000 and alleges Bank of the West conspired in the applications. It pleads causes of action under 31 U.S.C. § 3729(a)(1)(A), (B), (G) and (C) and seeks three times the government's damages plus civil penalties.
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Cite this document
“Complaint — U.S. ex rel. Bell Hill, LLC v. Seasholtz (E.D. Cal.).”
Original at archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/court-filing-no-1-20-cv-00942-dkt-1-e-d-cal-38619d649f/
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Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 1 of 21
1 JUSTIN T. BERGER (SBN 250346)
jberger@cpmlegal.com FILED
2 ERIC J. BUESCHER (SBN 271323)
ebuescher@cpmlegal.com Jul 06, 2020
KELSEY J. MOE (SBN 328815)
CLERK, U.S. DISTRICT COURT
3 EASTERN DISTRICT OF CALIFORNIA
kmoe@cpmlegal.com
4 COTCHETT, PITRE & McCARTHY, LLP
San Francisco Airport Office Center
5 840 Malcolm Road
Burlingame, CA 94010
6
7
Telephone: (650) 697-6000
Facsimile: (650) 697-0577 SEALED
Attorneys for Relator Bell Hill, LLC
8
UNITED STATES DISTRICT COURT
9
EASTERN DISTRICT OF CALIFORNIA
10
UNTIED STATES OF AMERICA ex rel. BELL CASE NO. 1:20-cv-0942 DAD BAM
11 HILL, LLC,
COMPLAINT FOR VIOLATION OF
12 Plaintiffs, FALSE CLAIMS ACT
13 v.
DEMAND FOR JURY TRIAL
14 JOHN SEASHOLTZ; SWEETWOOD FARM
CO. LLC; MENDOTA LAND COMPANY;
15 SWEETWOOD FARM INC.; SEASHOLTZ CO.
LLC; and BANK OF THE WEST,
16
Defendants.
17
18
[FILED IN CAMERA AND UNDER SEAL
19
PURSUANT TO 31 U.S.C. § 3730(b)(2)]
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♼ COMPLAINT
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 2 of 21
1 TABLE OF CONTENTS
2 Page No.
3 I. INTRODUCTION ...................................................................................................................... 1
4 II. JURISDICTION AND VENUE ................................................................................................. 2
5 III. PARTIES .................................................................................................................................... 2
6 IV. THE FALSE CLAIMS ACT ...................................................................................................... 4
7 V. THE CARES ACT AND PPP PROGRAM................................................................................ 5
8 VI. THE SEASHOLTZ DEFENDANTS’ DID NOT QUALIFY FOR THE LOANS .................... 9
9 A. Background on the Seasholtz Businesses and Their Relationship with Bank of the
West ................................................................................................................................ 9
10
B. The Seashotlz Businesses had Access to Tens of Millions of Dollars in Cash, Liquid
11 Assets, Prepaid Expense Accounts, and Low Interest, Pre-Approved Capital ............. 12
12 VII. THE SEASHOLTZ DEFENDANTS MADE MATERIALLY FALSE STATEMENTS IN
APPLYING FOR PPP LOANS ................................................................................................ 13
13
VIII. CAUSES OF ACTION ............................................................................................................. 15
14
First Cause of Action
15 31 U.S.C. § 3729(a)(1)(A)
Submission of a False Claim
16 (Against Seasholtz Defendants) .................................................................................... 15
17 Second Cause of Action
31 U.S.C. § 3729(a)(1)(B)
18 Making False Statement in Support of a Claim
(Against Seasholtz Defendants) .................................................................................... 16
19
Third Cause of Action
20 31 U.S.C. § 3729(a)(1)(G)
Improper Retention of Money Owed to the Government
21 (Against Seasholtz Defendants) .................................................................................... 17
22 Fourth Cause of Action
31 U.S.C. § 3729(a)(1)(C)
23 Conspiracy to Violate the False Claims Act
(Against all Defendants) ............................................................................................... 17
24
IX. PRAYER FOR RELIEF ........................................................................................................... 18
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X. JURY DEMAND ...................................................................................................................... 19
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♼ COMPLAINT i
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COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 3 of 21
1 I. INTRODUCTION
2 1. The novel coronavirus has wrought devastation throughout our country. In response,
3 Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in March
4 2020. The law was intended to provide emergency financial assistance to Americans who are
5 suffering from the economic impact of the virus.
6 2. One highly publicized portion of the aid was the Paycheck Protection Program
7 (“PPP”). Congress initially authorized $349 billion in forgivable loans to small business, and then in
8 April 2020 authorized more than $300 billion in additional funding for PPP.
9 3. Relator Bell Hill, LLC brings this lawsuit under the False Claims Act to redress the
10 Seasholtz Defendants’ improper receipt and retention of PPP loans, as well as to hold the Seasholtz
11 Defendants and Bank of the West liable for conspiring to obtain millions of dollars of taxpayer funds
12 to which they were not entitled. As a result of the defendants’ fraud conspiracy, they received four
13 PPP loans totaling $3,557,990.
14 4. Not a penny of these loans were necessary, and defendants made false certifications of
15 need under the PPP program and the CARES Act. These false statements were material in getting the
16 loan approved. These statements were objectively false, were knowingly so, and the conspiring bank
17 knew of their falsity as well. Only by making these false certifications and statements were the
18 defendants able to claim eligibility for the loan program and, most tantalizing, for eventual
19 forgiveness of the loans. In short, the loans were not needed, yet resulted in $3.5mm of taxpayer
20 dollars being directed to the Seasholtz Defendants to pay down lines of credit, reduce their interest
21 expenses, and profit off the PPP program, all with the opportunity to have the principal and interest of
22 those loans forgiven.
23 5. The loans were funded through Bank of the West. While lenders are nominally
24 entitled to rely on representations made to them by borrowers, in this case Bank of the West knew the
25 Seasholtz entities were not eligible for PPP loans. Despite this knowledge, the Bank’s representatives
26 worked with, assisted, aided, and conspired with, the Seasholtz’s and their entities in applying for,
27 receiving, funding, and ultimately potentially obtaining forgiveness of the loan.
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♼ COMPLAINT 1
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 4 of 21
1 II. JURISDICTION AND VENUE
2 6. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
3 § 1331, and 31 U.S.C. § 3732, the latter of which specifically confers jurisdiction on this Court for
4 actions brought pursuant to 31 U.S.C. §§ 3729 and 3730.
5 7. This Court has personal jurisdiction over Defendants pursuant to 31 U.S.C. § 3732(a)
6 because that section authorizes nationwide service of process and because Defendants have minimum
7 contacts with the United States. Moreover, Defendants can be found in and have transacted business
8 in the Eastern District of California.
9 8. Venue is proper in the Eastern District of California pursuant to 28 U.S.C. §§ 1391(b)
10 and 1395(a) and 31 U.S.C. § 3732(a) because Defendants can be found in and/or transact or have
11 transacted business in this district. At all times relevant to this Complaint, Defendants regularly
12 conducted, and continue to conduct, substantial business within this district and/or maintain
13 employees and offices in this district. The events that gave rise to this action occurred in this district.
14 III. PARTIES
15 9. Relator BELL HILL, LLC files this action on behalf of the United States pursuant to
16 the False Claims Act. BELL HILL, LLC is a Florida limited liability. From approximately 2012
17 through February 2020, the Manager of Bell Hill, LLC, Phil Maxwell worked for the Seasholtzes and
18 their companies as a consultant, and Bell Hill was paid by Defendant Sweetwood Farm, Inc. He
19 consulted on agricultural operations and accounting. Mr. Maxwell has over fifty years of experience
20 working in agricultural operations, accounting, and finance. Mr. Maxwell has an undergraduate
21 degree in agricultural economics from UC Davis and an MBA in accounting from Stanford
22 University. Mr. Maxwell has personal knowledge of the facts alleged herein regarding the Seasholtz
23 Defendants. Mr. Maxwell is an original source of the information contained herein. At the time of
24 filing this lawsuit, the fact the Seasholtz companies had received a PPP loan, and the fact that they
25 were ineligible for receiving a PPP loan were not publicly disclosed.
26 10. Defendant SWEETWOOD FARM CO. LLC (“SF LLC”) is a California LLC located
27 in Fresno, California. SF LLC is a service company that performs management and administration
28 services for the Seasholtz companies. SF LLC maintains a payroll and owns a home that is rented to
♼ COMPLAINT 2
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 5 of 21
1 the Seasholtz’s son. On May 7, 2020, SF LLC received funds from a PPP loan in the amount of
2 $472,495.
3 11. Defendant MENDOTA LAND COMPANY (“MLC”) is a SUB S California
4 corporation located in Fresno, California. MLC is a land, equipment, and packing house owner as
5 well as a crop producer. MLC maintains a payroll. On May 5, 2020, MLC received funds from a PPP
6 loan in the amount of $469,995.
7 12. Defendant SWEETWOOD FARM INC. (“SFI”) is a SUB S California corporation
8 located in Fresno, California. SFI leases land from MLC and Pappas Land Company (see ¶ 14.a.,
9 infra) and Defendant MLC and conducts the business of packing, selling, and shipping fresh tomatoes
10 produced by the Seasholtz entities. SFI maintains a payroll. On May 6, 2020, Defendant SFI received
11 funds from a PPP loan in the amount of $2,000,000.
12 13. Defendant SEASHOLTZ CO. LLC (“SEA CO”) is a California LLC located in
13 Fresno, California. SEA CO is a farm operations service company. It has no land or equipment. SEA
14 CO is also the general partner of the JV Seasholtz Family Limited Partnership. SEA CO performs
15 farming and harvest services for the landowning companies controlled by the Seasholtzes. SEA CO
16 maintains a payroll. On April 27, 2020, SEA CO received funds from a PPP loan in the amount of
17 $625,000.
18 14. Defendant JOHN SEASHOLTZ and his wife Vicky Seasholtz own and control
19 Defendants SF LLC, MLC, SFI, and SEA CO. The defendant businesses are all pass through entities
20 to a single proprietorship controlled by John and Vicky Seasholtz (“JOS”). 1 JOS owns and leases
21 land, owns equipment, and produces crops. It does not maintain a payroll. JOS controls the finances
22 of all of the Seasholtz entities. It maintains and controls a line of credit and borrowing relationship
23 with Defendant Bank of the West. In addition to the entities identified as Defendants, the Seasholtzes
24 also own and control:
25
1
26 Upon information and belief, John Seasholtz has a power of attorney for his wife. John Seasholtz
makes decisions for her in connection with the sole proprietorship and as partners in the John and
27 Vicky Seasholtz Family Limited Partnership. Any decisions or certifications made by Vicky
Seasholtz in connection with the PPP loans obtained by the Seasholtz entities were made by John
28 Seasholtz on her behalf.
♼ COMPLAINT 3
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COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 6 of 21
1 a. Pappas Land Company (“Pappas”) is SUB S California corporation. Pappas is a land
2 and equipment owner, a packing house owner, and a crop producer. Pappas does not
3 maintain a payroll.
4 b. Sweetwood Marketing, Inc. (“SMI”) is a C California corporation. SMI handles export
5 sales and does not maintain a payroll.
6 c. JV Seasholltz Family Limited Partnership (“JVSFLP”) is a California limited
7 partnership. It owns land and equipment, leases land, and produces crops. JVSFLP
8 does not maintain a payroll. The partners of JVSFLP are John and Vicky Seasholtz
9 and SEA CO.
10 In total, the Seasholtzes own and control at least eight entities and have effective control over at least
11 two additional entities nominally owned by their children.
12 15. Each of the Seasholtz entities identified in paragraphs 10-14 operate on a “zero-
13 balance” financial system through an agreement with Bank of the West. Pursuant to this system, the
14 Bank zeroes balances on a set of accounts on a nightly basis, with any balance cleared to or from a
15 master account. The master account is the JOS proprietorship account, and has access to a line of
16 credit through Bank of the West to cover any balances. Excess cash from any of the accounts is first
17 used to pay down any existing balance on the line of credit.
18 16. Defendant Bank of the West is a California Corporation located in San Francisco,
19 California. Bank of the West maintains offices throughout this district, including its Agricultural
20 Lending Department in Fresno where the Seasholtzes have had a long-term banking and financial
21 management relationship.
22 IV. THE FALSE CLAIMS ACT
23 17. The federal False Claims Act (the “FCA” of “Act”) was originally enacted during the
24 Civil War. Congress substantially amended the Act in 1986 – and, again, in 2009 and 2010 – to
25 enhance the ability of the United States Government to recover losses sustained as a result of fraud
26 against it. The Act was amended after Congress found that fraud in federal programs was pervasive
27 and that the Act, which Congress characterized as the primary tool for combating government fraud,
28 was in need of modernization. Congress intended that the amendments would create incentives for
♼ COMPLAINT 4
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 7 of 21
1 individuals with knowledge of fraud against the Government to disclose the information without fear
2 of reprisals or Government inaction, and to encourage the private bar to commit legal resources to
3 prosecuting fraud on the Government’s behalf.
4 18. The FCA prohibits, inter alia: (a) knowingly presenting (or causing to be presented) to
5 the federal government a false or fraudulent claim for payment or approval; (b) knowingly making or
6 using, or causing to be made or used, a false or fraudulent record or statement material to a false or
7 fraudulent claim; (c) knowingly making, using, or causing to be made or used, a false record or
8 statement material to an obligation to pay or transmit money or property to the Government, or
9 knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay or
10 transmit money or property to the Government; and (d) conspiring to violate any of these sections of
11 the FCA. 31 U.S.C. §§ 3729(a)(1)(A)-(C), and (G). Any person who violates the FCA is liable for a
12 civil penalty of thousands of dollars for each violation, plus three times the amount of the damages
13 sustained by the United States. 31 U.S.C. § 3729(a)(1).
14 19. The FCA allows any person having information about an FCA violation to bring an
15 action on behalf of the United States, and to share in any recovery. The FCA requires that the
16 Complaint be filed under seal for a minimum of 60 days (without service on the defendant during that
17 time) to allow the government time to conduct its own investigation and to determine whether to join
18 the suit.
19 V. THE CARES ACT AND PPP PROGRAM
20 20. The CARES Act was enacted in March 2020 to provide emergency financial
21 assistance to the millions of Americans suffering the economic effects caused by the COVID-19
22 pandemic. One piece of the CARES Act was the authorization of up to $349 billion in forgivable
23 loans to small businesses for job retention and certain other expenses, through the PPP. In April 2020,
24 Congress authorized over $300 billion in additional PPP funding.
25 21. In order to obtain a PPP loan, a business had to qualify as a small business, and was
26 required submit a PPP loan application. The application is signed by an authorized representative of
27 the business. The application requires the business to acknowledge the program rules and make
28 affirmative certifications to be eligible to obtain the PPP loan and receive funds.
♼ COMPLAINT 5
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COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 8 of 21
1 22. The certifications made by applying businesses in the application are below:
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27 23. Most relevant here, to be eligible to receive money from the program, the business
28 must make a good faith determination that “current economic uncertainty makes this loan necessary
♼ COMPLAINT 6
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COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 9 of 21
1 to support the ongoing operations of the Applicant.” This means that entities are only eligible for PPP
2 loans where obtaining the money through the PPP program is a necessity. As more fully explained
3 by the Department of Treasury in its Frequently Asked Questions website related to the PPP program
4 (available at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-
5 Asked-Questions.pdf, last accessed June 25, 2020):
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20 Because this response was added on April 23, 2020, Treasury provided a safe harbor to businesses
21 who received but did not need a PPP loan to repay those loans with no consequence if they did so by
22 the deadline. However, entities that did not repay their loan, but instead sought forgiveness under the
23 PPP program, are not protected by the safe harbor.
24 24. The applicant is also required to identify whether “the applicant or any owner of the
25 Applicant [is] an owner of any other business, or have common management with any other
26 business?” PPP borrower application Question 3. Any such business must be disclosed as part of the
27 application.
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♼ COMPLAINT 7
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COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 10 of 21
1 25. In addition the applicant must state, among other things, its: (a) average monthly
2 payroll expenses; and (b) number of employees. These figures are used to calculate the amount of
3 money the small business is eligible to receive under the PPP as well as to determine eligibility in the
4 program. In addition, businesses applying for a PPP loan must provide documentation showing their
5 payroll expenses.
6 26. A business’s PPP loan application is received and processed, in the first instance, by a
7 participating financial institution, then transmitted, for further review, to the Small Business
8 Administration (“SBA”) to assess the applicant’s eligibility. If a PPP loan application is approved,
9 the participating financial institution funds the PPP loan directly.
10 27. PPP loan proceeds must be used by the business on certain permissible expenses --
11 payroll costs, interest on mortgages, rent, and utilities. The PPP allows the interest and principal on
12 the PPP loan to be entirely forgiven if the business spends the loan proceeds on these expense items
13 within a designated period of time and uses a minimum percentage of those funds on payroll
14 expenses.
15 28. Borrowers may apply for and receive forgiveness of the principal and interest on their
16 loans if they use the funds for certain qualifying business expenses. In order for a loan to be forgiven,
17 subject to certain additional requirements, at least 60% of the proceeds of the loan must be spent on
18 payroll costs, while the remainder of the forgiven amount must be spent on business mortgage
19 interest payments, business rent or lease payments, or business utility payments.
20 29. In applying for forgiveness of a loan, borrowers again make certifications and
21 representations to the government that are material and binding. The certifications made in the
22 forgiveness application including the following:
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♼ COMPLAINT 8
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 11 of 21
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11 VI. THE SEASHOLTZ DEFENDANTS’ DID NOT QUALIFY FOR THE LOANS
12 A. Background on the Seasholtz Businesses and Their Relationship with Bank of the
13 West
14 30. The Seasholtzes grow, harvest, process, pack, ship, and sell crops, primarily
15 processing and fresh tomatoes along with processing onions, garlic, and cotton. They have contracts
16 for the sale of the processing of crops and sell packed fresh tomatoes on a day-to-day basis from June
17 to October to customers throughout the United States. The Seasholtz’s fresh tomato brand is “Red
18 Rooster.” They own roughly 5,600 acres, and lease roughly 430 acres of farm land in Fresno,
19 Merced, San Benito, and Santa Clara Counties. They have been farming for over forty years.
20 31. Because the Seasholtzes control the entire process and business they are able to
21 consistently project future expenses and income. As a seasonal business with substantial accessible
22 cash and liquidity, they prepay substantial portions of their expenses in December of each year. In
23 December of 2019 the Seasholtzes purchased and paid for over $10,000,000 in inputs for the 2020
24 production year. The inputs, among other things, include fuel, chemicals, cartons, seed, plants,
25 insurance, and rent.
26 32. The Seasholtzes own and lease the land that is farmed, the equipment to farm it, and
27 the packing house for the fresh tomatoes. They pack, market, sell, and ship the crops to customers
28
♼ COMPLAINT 9
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 12 of 21
1 throughout California and the United States. All of the operation, financing is run through the JOS
2 proprietorship accounts.
3 33. The companies use a “zero-balance” financial system. This is an agreement with
4 Defendant Bank of the West to zero balances nightly on a set of accounts with any balance cleared to
5 or from a master account. The master account must cover any negative balances in the system
6 nightly. In most cases the master account is linked to a line of credit.
7 34. For the Seasholtzes, the master account for the zero-balance system is the JOS
8 proprietorship account. Each of the Defendant entities has a commercial account for checks and
9 receipts. Defendants SEA CO, MLC, and SFI have separate accounts for payroll checks that are also
10 tied to the zero-balance system. Defendant SF LLC has a single account for both regular
11 checks/expenses and for payroll that is tied to the zero-balance system. SMI does not have any
12 accounts tied to the zero-balance system.
13 35. Each of the Defendant entities also have accounts that are dedicated cash accounts that
14 are not tied to the zero-balance system. This is cash which the Seasholtz’s have domiciled in a
15 controlled entity for some reason. These accounts are primarily held in either CDs or through
16 investment accounts at Merrill Lynch. There is generally little to no activity in these accounts. The
17 proprietorship also has some of these accounts. The “dedicated cash” accounts are not linked to the
18 zero-balance system, where the “operating accounts” for each entity are.
19 36. Customarily, starting in mid-January and continuing through June, the Seasholtz
20 businesses incur costs that result in an increase in the amount owed on the Seasholtz’s line of credit.
21 In short, they expect to be revenue negative during this time period each year. And most years, the
22 amount of the increase on the line of credit is around $4,000,000.
23 37. The Seasholtzes have a significant and long-standing relationship with Bank of the
24 West for borrowing of operating capital. All the zero-balance accounts described above are held at
25 Bank of the West.
26 38. John and Vicky Seasholtz’s personal line of credit with Bank of the West for 2020
27 operations is for $21 million. Their proprietorship account is the master account for the zero-balance
28 system. All other operating accounts are linked to this master account with negative balances covered
♼ COMPLAINT 10
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 13 of 21
1 automatically each night from the Seasholtz master account and any positive balances transferred
2 nightly into that master account. The Seasholtz master account is linked to their $21 million line of
3 credit and any negative balance as a result of all the transfers out nightly are covered by the line of
4 credit. Conversely a positive balance which may result in any account is transferred to the proprietor
5 account and if it results in a positive balance, is paid automatically against the line of credit.
6 39. To obtain this immediate borrowing capacity, the Seasholtzes provide a
7 comprehensive single budget which includes the operation of all the companies including their
8 children’s crops and they provide a personal guarantee to Bank of the West. Their children also
9 receive a line of credit of $1,000,000. John Seasholtz also submits a monthly position report which
10 sets forth the global position of the Seasholtz businesses, including the two businesses owned by his
11 children. All of the information about the financial state of the Seasholtz businesses was known to
12 Bank of the West prior to any submission of a PPP loan application. Despite Bank of the West’s
13 knowledge that a PPP loan was not necessary for the Seasholtzes and their entities, in March and
14 April 2020, they agreed to work with the Seasholtzes to obtain PPP loans, and took steps to assist in
15 preparation of the application and follow up calls with the SBA in order to approve and fund the
16 loans.
17 40. At the time of the loan application, Bank of the West was aware that the Seasholtz
18 companies did not need the loan, had adequate cash and substantial access to capital, yet worked with
19 the John Seasholtz in order to complete the loan application. The Seasholtz’s primary contact at Bank
20 of the West for this project was Rod Krouskup.
21 41. After the application was submitted, SBA loan evaluators had questions about the
22 request. The Seasholtzes, Bank of the West, and SBA evaluators participated in a call on or around
23 April 8, 2020. Grayson Parley, a staff accountant for Seasholtz, gathered information in coordination
24 with Bank of the West and the Seasholtz entities. As a result of the additional information provided
25 by Seasholtz and Bank of the West, the PPP loans were approved and funded.
26 ///
27 ///
28 ///
♼ COMPLAINT 11
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 14 of 21
1 B. The Seashotlz Businesses had Access to Tens of Millions of Dollars in Cash,
2 Liquid Assets, Prepaid Expense Accounts, and Low Interest, Pre-Approved
3 Capital
4 42. The Seasholtz businesses did not close as a result of the COVID-19 pandemic or the
5 state of California’s shelter in place orders. As an agricultural business, their work was essential.
6 43. As a result of the substantial cash, the fact the business is essential and did not close,
7 the significant access to capital and liquidity, the Seasholtz companies were never at any risk of
8 closure or significantly reduced operations that would have risked the companies’ ongoing ability to
9 operate.
10 44. On March 20, 2020, five days before CARES Act was passed, but at a time when the
11 provisions of the program were known, $300,000 was transferred out of MLC Institutional Fund
12 account, leaving a balance of $183,582. The money was deposited into the MLC general operating
13 account. Defendants’ Quickbooks system reflects a zero-balance transfer of the money from MLC to
14 the JOS proprietorship master account.
15 45. Also on March 20, 2020 Defendants transferred $1,520,665 from SFI’s Merrill Lynch
16 account, leaving a balance of $1,868,284. The money was deposited into SFI’s general operating
17 account. Defendants’ Quickbooks system reflects a zero-balance transfer of the money from SFI to
18 the JOS proprietorship master account.
19 46. As of March 31, 2020, the Seasholtz entities had over $10 million of cash, $13 million
20 available from their line of credit, approximately $10 million available in a Farm Credit Revolver
21 Reserve, and roughly $7 million in prepaid supplies and inventory. The Farm Credit Revolver
22 Reserve is also immediately accessible. It is secured by the land owned by the JVSFLP, the MLC,
23 and Pappas Land Company.
24 47. Thus, in total, as of late March 2020, the Seasholtzes had enough cash to continue to
25 operate their businesses, had prepaid substantial expenses for the upcoming months, and had and
26 roughly $23 million accessible in borrowing capacity, over half of which could be drawn simply by
27 any of the Seasholtz entities simply by writing a check from any of their various operating accounts.
28
♼ COMPLAINT 12
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 15 of 21
1 VII. THE SEASHOLTZ DEFENDANTS MADE MATERIALLY FALSE STATEMENTS
2 IN APPLYING FOR PPP LOANS
3 48. SFI, SF LLC, SEA CO, and MLC all applied for PPP loans through Bank of the West
4 in April 2020. At that time, Bank of the West was the Seashotlz’s SBA loan agent and represented
5 their businesses for banking purposes.
6 49. The Seasholtzes, and Defendants SFI, SF LLC, SEA CO, and MLC made materially
7 false certifications in applying for the loans.
8 50. First, in applying for the PPP loans, each of the four Defendant entities that received
9 the loans misrepresented its eligibility for the program. MLC, SFI, SF LLC, and SEA CO were all
10 adequately capitalized, had access to cash from the zero-balance account, could draw in the
11 Seasholtz’s master proprietorship account simply by writing a check, and had prepaid significant
12 expenses for 2020 in December of 2019.
13 51. As a result, they were not eligible for the loans.
14 52. Second, upon information and belief, Defendants misrepresented their affiliated
15 entities that were required to be disclosed under the application. In submitting their application,
16 Defendants provided an “Addendum A” to Bank of the West. This document should have listed all
17 affiliated owners and entities under common ownership. Yet the Addendum obtained by Mr.
18 Maxewll only listed SFI, SF LLC, MLC, and SEA CO, leaving out the JOS proprietorship, the JVS
19 FLP, Pappas, and Sweetwood Marketing. Upon information and belief, this addendum was submitted
20 with the loan application. This made the application materially incomplete.
21 53. Concealing this information was important as it hid the existence of the JOS
22 proprietorship account, the JVS FLP, Pappas, and the Seasholtz’s individual accounts, to which these
23 entities had access.
24 54. Further, Defendants misrepresented the number of employees they had. In
25 “Addendum A,” defendants disclosed that there were 474 total employees at the four identified
26 entities, including labor contractors and full-time employees. Upon information and belief, after
27 submitting the application, in a draft of an email prepared by Grayson Parley, defendants concluded
28 that when they looked at their actual payroll, they were “over the threshold of 500 people.”
♼ COMPLAINT 13
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 16 of 21
1 55. Further evidence of the Seasholtz's and Bank of the West illegal conspiracy is the
2 amount of Defendant SFI's loan application. Shortly after the passage of the CARES ACT the SBA
3 provided advice that loans of $2,000,000 or less would be deemed to be certified in "good faith" and
4 exempt from SBA audit. Relator believes that the calculated loan amount for Defendant SFI would
5 have been greater than $2,000,000 but was limited to that amount in an attempt to avoid scrutiny.
6 56. In order to create the illusion the funds were properly used, the Seasholtzes made a
7 journal entry in the amount of 75% of the funds from the loans for Defendants SEA CO, MLC, and
8 SFI to their respective separate payroll accounts. Each of these three accounts are tied to the zero-
9 balance system. The reality is that, despite the journal entries disguising the location of the funds to
10 “payroll” expenses, the cash was transferred to the JOS proprietorship account, not to any of the
11 operating payroll accounts. No similar journal entry was made for the loan to SF LLC.
12 57. First, the funds were used to reduce outstanding principal and interest debt on the
13 Seasholtz’s line of credit. This is not a qualifying expense, no matter how it is reflected on the books
14 of the Seasholtz’s businesses.
15 58. Second, all of the land lease payments owed by any of the borrowers were simply
16 owed to other Seasholtz controlled entities. Additionally, the vast majority of the lease payments
17 owed through at least June 2020 had been prepaid.
18 59. Third, many operational costs, with an estimated balance of $7,000,000 at March 31,
19 2020, remained prepaid at the time of the Seasholtz entities application, eliminating them from
20 consideration in eligibility for necessity of the PPP loans
21 60. At the time of filing this action, the Seasholtzes have not, to Relator’s knowledge,
22 made a request for forgiveness of their PPP loans. Upon information and belief, they plan to do so,
23 and if in seeking forgiveness of their loans, Defendants certify that they spent the funds on qualifying
24 business expenses, such a certification will be false. At the time the loans were funded, the zero-
25 balance system used by the Seasholtzes meant that the cash that came in was cleared into the JOS
26 account and used to pay down the outstanding balance on their line of credit. Moreover, with the
27 establishment of the intentions of the Seasholtzes to apply for forgiveness of the PPP loans
28
♼ COMPLAINT 14
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 17 of 21
1 61. In short, the Seasholtz’s businesses did not need loans, did not have any appreciable
2 increased risk of failure, had sufficient cash to cover all planned expenses during the time which the
3 loan funds were required to be used, and used the ill-gotten proceeds of the PPP loans to pay down
4 their personal line of credit. Bank of the West knew all of this yet agreed with the Seasholtzes to
5 work with them to obtain PPP loans, and then funded the PPP loans after they were wrongly
6 approved.
7 62. The money made available in the PPP program was designed to help small businesses
8 whose existence and operations were at risk of ending. Widespread small business closures have a
9 devastating effect on the economy, local communities, and individuals and their families. By
10 misrepresenting eligibility for a loan, the Seasholtzes obtained $3.5 million in funds that were not
11 available for dozens of others who actually needed the money.
12 63. The Seasholtzes and Bank of the West violated the False Claims Act by making false
13 claims for funds through PPP loans, making false statements in support those applications and claims,
14 retaining funds which they were required to return, using the proceeds of the loans for ineligible
15 expenses despite promises to the contrary, and conspiring to obtain the PPP loans.
16 VIII. CAUSES OF ACTION
17 First Cause of Action
18 31 U.S.C. § 3729(a)(1)(A)
19 Submission of a False Claim
20 (Against Seasholtz Defendants)
21 64. Relator realleges and incorporates by reference the allegations contained in all
22 paragraphs of the Complaint as if fully set forth herein.
23 65. This is a claim for treble damages and penalties under the False Claims Act, 31 U.S.C.
24 § 3729, et seq., as amended.
25 66. By virtue of the acts described above, Defendants knowingly presented or caused to be
26 presented, false or fraudulent claims to the United States Government for payment or approval.
27 67. The Government, unaware of the falsity funded PPP loans to be paid to the Seasholtz
28 entities that would not have been funded or paid but for Defendants’ illegal conduct.
♼ COMPLAINT 15
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 18 of 21
1 68. By reason of Defendants’ acts, the United States has been damaged, and continues to
2 be damaged, in a substantial amount to be determined at trial.
3 69. Additionally, the United States is entitled to the maximum penalty permitted for each
4 and every violation alleged herein.
5 70. Wherefore, Relator prays for relief as set forth below.
6 Second Cause of Action
7 31 U.S.C. § 3729(a)(1)(B)
8 Making False Statement in Support of a Claim
9 (Against Seasholtz Defendants)
10 71. Relator realleges and incorporates by reference the allegations contained in all
11 paragraphs of the Complaint as if fully set forth herein.
12 72. This is a claim for treble damages and penalties under the False Claims Act, 31 U.S.C.
13 § 3729, et seq., as amended.
14 73. By virtue of the acts described above, Defendants knowingly made or used, or caused
15 to be made or used, false or fraudulent records or statements material to false or fraudulent claims.
16 74. By virtue of the acts described above, Defendants knowingly made or used, or caused
17 to be made or used, false or fraudulent records or statements material to false or fraudulent claims.
18 75. The Government, unaware of the falsity funded PPP loans to be paid to the Seasholtz
19 entities that would not have been funded or paid but for Defendants’ illegal conduct.
20 76. By reason of Defendants’ acts, the United States has been damaged, and continues to
21 be damaged, in a substantial amount to be determined at trial.
22 77. Additionally, the United States is entitled to the maximum penalty permitted for each
23 and every violation alleged herein.
24 78. Wherefore, Relator prays for relief as set forth below.
25 ///
26 ///
27 ///
28 / / /s
♼ COMPLAINT 16
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 19 of 21
1 Third Cause of Action
2 31 U.S.C. § 3729(a)(1)(G)
3 Improper Retention of Money Owed to the Government
4 (Against Seasholtz Defendants)
5 79. Relator realleges and incorporates by reference the allegations contained in all
6 paragraphs of the Complaint as if fully set forth herein.
7 80. This is a claim for treble damages and penalties under the False Claims Act, 31 U.S.C.
8 § 3729, et seq., as amended.
9 81. By virtue of the acts described above, Defendants knowingly concealed overpayments
10 from the United States Government and failed to remit such overpayments.
11 82. The Government, unaware of the falsity funded PPP loans to be paid to the Seasholtz
12 entities that would not have been funded or paid but for Defendants’ illegal conduct.
13 83. By reason of Defendants’ acts, the United States has been damaged, and continues to
14 be damaged, in a substantial amount to be determined at trial.
15 84. Additionally, the United States is entitled to the maximum penalty permitted for each
16 and every violation alleged herein.
17 85. Wherefore, Relator prays for relief as set forth below.
18 Fourth Cause of Action
19 31 U.S.C. § 3729(a)(1)(C)
20 Conspiracy to Violate the False Claims Act
21 (Against all Defendants)
22 86. Relator realleges and incorporates by reference the allegations contained in all
23 paragraphs of the Complaint as if fully set forth herein.
24 87. This is a claim for treble damages and penalties under the False Claims Act, 31 U.S.C.
25 § 3729, et seq., as amended.
26 88. By virtue of the acts described above, Defendants, their agents, employees and other
27 co-conspirators knowingly conspired to submit false claims to the United States, make or use false
28
♼ COMPLAINT 17
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 20 of 21
1 records or statements material to false or fraudulent claims, and to conceal and fail to remit
2 overpayments from the United States.
3 89. The Government, unaware of the falsity funded PPP loans to be paid to the Seasholtz
4 entities that would not have been funded or paid but for Defendants’ illegal conduct.
5 90. By reason of Defendants’ acts, the United States has been damaged, and continues to
6 be damaged, in a substantial amount to be determined at trial.
7 91. Additionally, the United States is entitled to the maximum penalty permitted for each
8 and every violation alleged herein.
9 92. Wherefore, Relator prays for relief as set forth below.
10 IX. PRAYER FOR RELIEF
11 WHEREFORE, Relator prays for judgment against the Defendants as follows:
12 1. That this Court enter judgment against Defendants in an amount equal to three times
13 the amount of damages the United States has sustained because of Defendants’ actions, plus the
14 maximum civil penalty for each violation of 31 U.S.C. § 3729;
15 2. That Relator be awarded the maximum amount allowed pursuant to § 3730(d) of the
16 False Claims Act;
17 3. That Relator be awarded all costs of this action, including attorneys’ fees and
18 expenses; and
19 4. That Relator recover such other relief as the Court deems just and proper.
20 Dated: July 6, 2020 COTCHETT, PITRE & McCARTHY, LLP
21
By:
22 JUSTIN T. BERGER
ERIC J. BUESCHER
23 KELSIE J. MOE
24 Attorneys for Relator Bell Hill, LLC
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♼ COMPLAINT 18
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
Case 1:20-cv-00942-ADA-BAM Document 1 Filed 07/06/20 Page 21 of 21
1 X. JURY DEMAND
2 Plaintiff demands a jury trial on all issues so triable
3 Dated: July 6, 2020 COTCHETT, PITRE & McCARTHY, LLP
4
By:
5 JUSTIN T. BERGER
ERIC J. BUESCHER
6 KELSIE J. MOE
7 Attorneys for Relator Bell Hill, LLC
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♼ COMPLAINT 19
LAW OFFICES
COTCHETT, PITRE &
MCCARTHY, LLP
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