California Dental Offices Settle FCA Allegations Regarding Second-Draw PPP Loans for $6.3M
Client Alert | 3 min read | 09.04.24
On August 8, 2024, the U.S. Attorney’s Office for the Central District of California announced a $6.3 million False Claims Act settlement with West Coast Dental Administrative Services LLC (formerly West Coast Dental Services Inc.) and its founders and former owners due to seven improper second-draw Paycheck Protection Program loans received by West Coast Dental and affiliated dental offices.
Relator LLC—the same entity whose complaint in Golden Empire Mortgage was held to be barred by the public disclosure bar (discussed here)—initiated United States ex rel. Relator LLC v. West Coast Dental Services Inc., et al., CV 22-3812-MCS (MARx) (C.D. Cal.) using publicly available corporate filings as well as public data on PPP applications and loan forgiveness. West Coast Dental Services Inc. had received a first round PPP loan of $7.34M (in April 2020), reporting 477 employees, which was later forgiven in full (in June 2021). West Coast Dental also received a second round PPP loan of $1.05M (in February 2021), reporting 131 employees, which was forgiven in full (in March 2022). Relator LLC alleged that the owners of West Coast Dental not only could not have used the PPP loan to retain employees but that it necessarily violated the worker retention and payroll certification of the forgiveness application (given the reduction in employees from 477 to 131). Relator LLC further alleged that employees of West Coast Dental were shuffled to six other entities that were owned and controlled by one or more of the owners of West Coast Dental, who were named as individual defendants, in order to allow West Coast Dental to qualify under the 300-employee standard for a second round PPP loan and allow those other entities to seek their own first round PPP loans in 2021, thereby “double-dipping” for payroll costs for the same employees.
Per the press release, the government alleged a two-fold problem. First, that West Coast Dental and its affiliates collectively exceeded the maximum of 300 employees specified for second draw PPP loans via the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act. Second, that these entities failed to disclose common ownership of the affiliated dental offices in their separate PPP applications.
Seemingly swept up in the mix was City Real Estate Holdings Inc., a Beverly Hills-based real estate investment company owned by one of the same owners of West Coast Dental. Relator LLC named City Real Estate Holdings Inc. as a defendant in its complaint in conjunction with the argument that the defendants went on an alleged pandemic real estate buying spree with embezzled funds. As the complaint alleged, this entity had received its own $20,833 first round PPP loan, reporting just one employee. But the DOJ press release reveals that City Real Estate Holdings Inc. paid an additional $35,149.82 to resolve its potential liability under the FCA in connection with its PPP loan given the government’s allegations that this entity was ineligible to receive the loan under PPP rules (specifically 13 C.F.R. 120.110) as it was a passive business operated for investment purposes.
Relator LLC will receive approximately $507,000 of the total settlement.
Crowell has previously reported on the efforts of serial relators such as Relator LLC. See New Jersey Firm Pays $2.2M to Settle FCA Allegations it Received Improper PPP Loan | Crowell & Moring LLP
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