Judge Bruce G. Iwasaki, Case Number: 23STCV03118, Date: 2023-10-05 Tentative Ruling

The County of Los Angeles (County) brings this action for contractual fraud and false claims against Nexus IS, Inc. (Nexus), Dimension Data North America, Inc. (Dimension Data), NTT America Solutions, Inc. (NTT), Presidio Networked Solutions Group, LLC (Presidio), Tel/Pro Voice and Data, Inc. (Tel/Pro), Oasis Integration, Inc. (Oasis), Thomas Shepos (Shepos), Mohammad Tirmazi (Tirmazi), Enrique Contreras (Enrique), Melissa Contreras (Melissa), TEQ Solutions, LLC (TEQ Solutions), Syed Hussnain (Hussnain), and Gregory Hanes (Hanes).

Nexus is a prime contractor with the County. In 2017, Nexus was acquired by Dimension Data, and in 2019, Dimension Data changed its name to NTT. Presidio is also a prime contractor with the County. As prime contractors, Nexus, Dimension Data, and NTT (Nexus Defendants) and Presidio were authorized to bid on Work Orders under Telecommunications Equipment and Services Master Agreements (TESMAs) with the County’s Internal Services Department.

Tel/Pro performed electrical wiring and telecommunications work for the County, first as a subcontractor for the Nexus Defendants and Presidio, and then as a prime contractor starting in 2017. According to the County’s Complaint, Oasis is the successor of Tel/Pro, and Tel/Pro and Oasis are owned by Enrique and Melissa (the Contreras).

Shepos was employed by the County as the Lease Acquisition Section Chief for the Real Estate Division of the Chief Executive Office. As part of his role with the County, Shepos was authorized to receive proposals from contractors and approve construction projects for County-leased properties.

Tirmazi was employed by the County's Internal Services Department as a Supervising Telecom Engineer. Tirmazi’s job duties included inspecting County buildings ahead of construction projects to determine what the County's needs were regarding telecommunications work and electrical cabling. Tirmazi also served as the Project Manager for the County on numerous projects for which Work Orders were awarded to Tel/Pro - either directly as a prime contractor or indirectly as a subcontractor to the Nexus Defendants or Presidio. As a Project Manager, Tirmazi was responsible for reviewing and selecting prime contractor bids for specific projects.

The County’s complaint alleges that Contreras, as owner of Tel/Pro, bribed Shepos and Tirmazi with cash, checks and/or gifts in exchange for non-public County information. The information was used to help Tel/Pro secure electrical and telecommunications subcontracts, and eventually Work Orders as a prime contractor, with the County.

More specifically, the County alleges Shepos would tell Contreras about upcoming County projects and the number of bids on those projects. Shepos would also use his influence to help Tel/Pro – or the Nexus Defendants and Presidio who would subcontract with Tel/Pro – to obtain County contracts. Meanwhile, Tirmazi approved false, inflated, or otherwise overpriced invoices from Tel/Pro, and concealed Tel/Pro's “shoddy” work which failed to conform to the County's Building and Safety Code or the National Electrical Code. To conceal the bribes received from Contreras and Tel/Pro, Shepos used Hanes as an intermediary and Tirmazi formed TEQ Solutions. To conceal Tirmazi’s interest in the TEQ Solutions, Tirmazi had another individual, Hussnain, file the registration paperwork and open a bank account for TEQ Solutions.

Based on these allegations, the County asserts thirteen causes of action for: (1) California Government Code sections 1090 and 1092; (2) declaratory relief; (3) violation of the California False Claims Act, Cal. Government Code section 12651, subdivision (a)(l); (4) violation of the California False Claims Act, Cal. Government Code section 12651, subdivision (a)(2); (5) violation of the California False Claims Act, Cal. Government Code section 12651, subdivision (a)(3); (6) violation of the California False Claims Act, Cal. Government Code section 12651, subdivision (a)(8); (7) intentional and constructive fraud; (8) breach of contract; (9) civil conspiracy to defraud; (10) unjust enrichment/restitution; (11) breach of fiduciary duty; (12) aiding and abetting breach of fiduciary duty; and (13) violation of California's unfair competition law, Business and Professions Code section 17200, et seq.

On April 10, 2023, Defendant Presidio Networked Solutions Group, LLC demurred to the Complaint. The Court sustained the demurrer as to second, third, fourth, fifth, sixth, seventh, and ninth causes of action, and overruled as to the first, eighth, tenth, twelfth, and thirteenth causes of action. The Court granted leave to amend.

On May 5, 2023, Nexus Defendants demurred to the Complaint. The Court sustained the demurrer to the second, third, fourth, fifth, sixth, seventh, and ninth cause of action, and overruled as to the first, eighth, tenth, twelfth, and thirteenth causes of action. The Court granted leave to amend.

On April 24, 2023, Defendants Mohammad Tirmazi, TEQ Solutions, LLC, and Syed Hussnain (Moving Defendants) demurred to the first, third, fourth, fifth, sixth, seventh, ninth, tenth, eleventh twelfth, and thirteenth causes of action. The County opposes the demurrer. No reply was filed.

The Demurrer to the seventh and ninth causes of action in the Complaint are sustained with leave to amend, and the demurrer to the first, third, fourth, fifth, sixth, tenth, eleventh twelfth, and thirteenth causes of action are overruled.

Moving Defendants’ request for judicial notice is granted as to Exhibits 1-3 for existence and filing only, and is denied as to Exhibit 4. (Evid. Code, § 452, subd. (d).)

The County’s request for judicial notice is granted as to Exhibit 1. (Evid. Code, § 452, subd. (d).)

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

Moving Defendants demur on the grounds that each cause of action is barred by the statute of limitations. The Complaint alleges nine claims against Defendants Tirmazi (first, third, fourth, fifth, seventh, ninth, tenth, eleventh and twelfth causes of action) and five claims against Defendants TEQ Solutions and Hussnain (fifth, sixth, ninth, twelfth and thirteenth causes of action).

In opposition, the County argues that these claims are all either subject to delayed accrual or tolling or both.

With respect to the first cause of action, Moving Defendants argue that the County knew or should have known of the claimed conflict of interest in contracts by at least mid-2017, when the investigation into Contreras began. (Compl., Ex. B.) The Complaint was filed on February 10, 2023 – more than four years after the statute of limitations for this claim expired. (Gov. Code, § 1092, subd. (b).)

The third, fourth, fifth, sixth and thirteenth causes of action are based on either causes of action for violations of the False Claims Act or are derivative of violations of the False Claims Act. (Compl. ¶¶ 104-165, 213-217.) The statute of limitations for a claim arising under California’s False Claims Act is six years from the date of the violation or three years from the date when plaintiff knew or should have known the material facts, whichever is later. (Gov. Code, § 12654(a). The statute of limitations for a claim arising under California’s Unfair Competition Law is four years from the date the underlying claim accrues—here, four years from either the date of the California False Claims Act violations or the date when plaintiff knew or should have known the material facts, whichever is later. (Bus. & Prof. Code, § 17208.)

Moving Defendant argue the Complaint alleges Tirmazi engaged in the violations between 2014 and 2017. (Complaint, ¶ 77(a).) As such, claims based on conduct predating August 16, 2016, are time-barred.

The Court previously ruled on this statute of limitations issue determining that the County discovered the wrongdoing on April 24, 2019 when Contreras’ and Tirmazi’s Plea Agreements were filed. (Compl., ¶ 83.) This Court further held that the complaint satisfies the second element by alleging that the County was “unable to discover . . . the full scope of each Defendant’s misconduct” due to “Defendants’ express misrepresentations and concealment of the bribery schemes from the County.” (Compl., ¶ 84.) Based on the allegations, the County’s did not and could not have learned about Tel/Pro’s bribery scheme and which contracts were implicated until this later date. (County’s Opp. P. 7:5-10; Compl., ¶ 83.)[1] Further, the Complaint contains numerous allegations of acts done to conceal the misconduct underlying these claims. (Compl., ¶¶ 15, 50, 52(e), (g), 69(a)-(f), 77(a)-(j).)

Based on the foregoing, the County’s first, third, fourth, fifth, sixth, and thirteenth causes of action are not time-barred.

The eleventh cause of action for breach of the fiduciary duty—contrary to Moving Defendants’ argument in demurrer – is subject to a four-year statute of limitations, not three years. (City of Vista v. Robert Thomas Securities, Inc. (2000) 84 Cal.App.4th 882, 889 [four-year statute of limitations applies to breach of fiduciary duty, unless the gravamen of the claim is actual or constructive fraud, in which case the statute of limitations is three years]; Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 963.)

As the Court explained in its prior rulings on the other Defendants’ demurrers, the breach of the fiduciary duty claim does not arise out of fraud, but is, instead, based on allegations that Shepos and Tirmazi breached their fiduciary duties and abused their authority by, among other things, (i) helping steer lucrative County contracts to Tel/Pro or contractors that they knew would subcontract their work to Tel/Pro; (ii) approving change orders for work that did not occur and materials that were not purchased, used, or necessary; (iii) approving invoices for work and materials that were overpriced; and (iv) failing to report or force Tel/Pro to correct code violations and other shoddy work uncovered during inspections. (Compl., ¶¶ 69, 77, 205, 207, Exs. A-C.)

Similarly, the tenth cause of action for unjust enrichment against Tirmazi also arises from the breach of fiduciary duty allegations—not fraud. (Compl., ¶¶ 3, 5, 198-99 [Tirmazi breached his fiduciary duty by accepting bribes in exchange for official acts, including disclosing “non-public information about the County’s needs for electrical and telecommunications work, the bidding process, and bids submitted by competing contractors”]; ¶¶ 193-94 [Tirmazi was “unjustly enriched” with “illicit payments and gifts in exchange for, among other things, non-public information about the County’s electrical and telecommunication needs”].) Thus, the unjust enrichment claim is subject to a four-year statute of limitations. (See American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1479; see also, FDIC v. Dintino (2008) 167 Cal.App.4th 333, 347-348; see also County of San Bernardino v. Walsh (2007) 158 Cal. App. 4th 533, 543 [“Disgorgement of profits is particularly applicable in cases dealing with breach of a fiduciary duty, and is a logical extension of the principle that public officials and other fiduciaries cannot profit by a breach of their duty. Where a person profits from transactions conducted by him as a fiduciary, the proper measure of damages is full disgorgement of any secret profit made by the fiduciary regardless of whether the principal suffers any damage.”].)

Thus, the tenth and eleventh causes of action are not time barred based on the discovery date of April 24, 2019.

The seventh cause of action for intentional and constructive fraud and the ninth cause of action for conspiracy to defraud are without question based on fraud. Moving Defendants argue that these claims are therefore subject to a three-year statute of limitations.

In response, the County argues that the conspiracy to defraud claim is timely. The limitations for conspiracy does not begin to run “until the ‘last overt act’ pursuant to the conspiracy has been completed.” (Wyatt v. Union Mortg. Co. (1979) 24 Cal. 3d 773, 786.) Here, the County argues the last overt act occurred when the final payment under the fraudulent Work Orders was made. (Compl. ¶¶ 1, 82-82(a)-(c), 144-49, 185-86.) However, the County’s citations to the Complaint does not allege a specific date of this final payment such that the Court cannot ascertain whether this date would render the claim timely. Thus, the demurrer to this cause of action is sustained with leave to amend.

Additionally, Defendants argue that fraud and conspiracy claims should be pled as a single cause of action. (Dem. at 13-14.) The County has agreed to combine the claims. The Court will sustain this claim with leave to amend on this basis.

Based on the foregoing, the demurrer to the seventh cause of action for intentional and constructive fraud and the ninth cause of action for conspiracy to defraud, is sustained with leave to amend.

Moving Defendants also demur to the fifth, ninth, and thirteenth causes of action alleged against Defendant TEQ Solutions on the grounds that these causes of action rely on a purported conspiracy between the TEQ Solutions and Tirmazi. They argue that this claim fails as a matter of law because TEQ Solutions is controlled by Tirmazi. That is, TEQ Solutions and Tirmazi could not conspire with each other because according to Plaintiff’s allegations, TEQ Solutions is controlled by Tirmazi. (Complaint, ¶ 15.)

In its twelfth cause of action, the County alleges TEQ Solutions aided and abetted Tirmazi’s breach of fiduciary duties to the County. (Complaint, ¶¶ 201-12.) Again, TEQ Solutions argues that because Tirmazi controls TEQ Solutions, TEQ Solutions could not aid and abet Tirmazi in committing a tort.

In response, the County argues that the conspiracy claims are not only alleged as to TEQ Solutions and Tirmaz. (See Compl., ¶ 80(b) [Hussnain agreed to file registration, open bank account, and serve as registered agent for TEQ to conceal bribes], ¶ 148 [TEQ “assist[ed] Tirmazi and the Tel/Pro Defendants in hiding the bribe payments they exchanged for the purpose of causing the County to pay out millions of dollars in taxpayer funds under the fraudulent Work Orders”].) Thus, whether TEQ could conspire with Tirmazi is not determinative of whether the demurrer to these causes of action can be sustained.

Moreover, the County persuasively argues it has alleged facts to support an exception to the doctrine that a corporation cannot conspire with its own employees or agents. (Hawaii ex rel. Torricer v. Liberty Dialysis-Hawaii LLC (D. Hawaii 2021) 512 F.Supp.3d 1096, 1118.) That is, the Complaint alleges Tirmazi had an independent personal stake in receiving bribes from Contreras. (See United States v. Medoc Health Services LLC (N.D. Tex. 2020) 470 F.Supp.3d 638, 659; H & B Equipment Co., Inc. v. International Harvester Co. (5th Cir. 1978) 577 F.2d 239, 244; cf. Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 47.)

Thus, Moving Defendants’ demurrer based on the supposed identity of TEQ Solutions and Tirmazi is not well-taken.

Moving Defendants argue that the County failed to state cognizable violations of Government Code section 12651, subdivision (a)(8).

Government Code section 12651(a)(8) subjects a person to punitive damages if he (1) benefitted from (2) an inadvertent submission of (3) a false claim, and (4) subsequently discovered the falsity of the claim, but (5) failed to disclose the false claim within a reasonable time. (Cal. Gov’t Code § 12651(a)(8).)

Moving Defendants argue that the County failed to adequately plead the first four of these elements of this claim.

Here, the Complaint alleges TEQ Solutions, and Hussnain benefitted from the submission of a false claim. (Comp., ¶¶ 80 (h), 159.)[2]

Further, the Complaint alleges that the Contreras bribed Tirmazi with cash, checks and gifts in exchange for, among other things, approving fraudulent change orders and inflated invoices and failing to report or force Tel/Pro to correct code violations and other shoddy work. (Compl., ¶ 77(a)-(j); Ex. C at 129-33.)

Third, the Complaint alleges the County made payments under these fraudulent invoices and change orders, and every other Work Order and contract secured through bribery. (Compl., ¶¶ 9, 104-165.) These payments constitute false claims. (United States ex rel. Campie v. Gilead Sciences, Inc. (9th Cir. 2017) 862 F.3d 890, 901; U.S. ex rel. Hendow v. University of Phoenix (9th Cir. 2006) 461 F.3d 1166, 1170.)

Finally, the County also alleges that TEQ and Hussnain were paid for facilitating and concealing the bribery schemes that resulted in these false claims, including through bribes paid by Contreras. (Compl. ¶¶ 80(h), 159.)

In its tenth cause of action, the County alleges Tirmazi was unjustly enriched at the expense of the County when he received bribes. (Compl., ¶¶ 190, 193.)

Moving Defendants argue that this cause of action fails because Tirmazi has already paid restitution to the County for the bribes he received, and thus has not retained any benefit at the County’s expense.

In making this argument, Moving Defendants rely on their request for judicial notice of a June 11, 2020 check. (Pl.’s RJN Ex. 4 [June 11, 2020 restitution check].) As noted above, this evidence is not properly subject to judicial notice. Moreover, as the opposition argues, none of Moving Defendants’ request for judicial notice exhibits state how much restitution Tirmazi actually paid to the County.

Additionally, the law recognizes a victim has a right to both restitution and a separate civil judgment. (Vigilant Ins. Co. v. Chiu (2009) 175 Cal.App.4th 438, 445 [“Since restitution orders and civil judgments are issued for different purposes, a victim suffering from economic losses as a result of a criminal act has a right to both”].)

In its thirteenth cause of action, the County alleges TEQ Solutions and Hussnain violated California’s Unfair Competition Law (Cal. Bus. & Prof. Code §§ 17200 et seq.) by conspiring to violate the False Claims Act and by failing to disclose their purported discovery of false claims to the county. (Compl., ¶¶ 213-17.)

On demurrer, Moving Defendant argue this claim fails because the actions that the County alleges TEQ Solutions and Hussnain engaged in do not constitute business acts or practices.

In response, the County argues that Defendants’ conclusory argument that their actions were not business acts or practices is not well-taken. Notably, Defendants cite no legal authority that suggests the conduct at issue does not constitute business acts or practices under the statute.

Moreover, the County correctly explains that a UCL claim may borrow violations of other laws and, when committed pursuant to business activity, these separate statutory violations are independently actionable under the UCL. (See Farmers Ins. Exch. v. Superior Court (1992) 2 Cal. 4th 377, 383.) Here, where the predicate statutory claims survive, the UCL claim cannot be dismissed on this ground. (See Turner v. Seterus, Inc. (2018) 27 Cal. App. 5th 516, 536 [since “some of [the] predicate claims are valid, the[] Business and Professions Code section 17200 claim is valid”].)

The Demurrer to the seventh and ninth causes of action in the Complaint is sustained. The demurrer to the first, third, fourth, fifth, sixth, tenth, eleventh, twelfth, and thirteenth causes of action is overruled. The County of Los Angeles is granted leave to amend. Plaintiff’s amended complaint shall be served and filed on or before November 2, 2023.

[1] There is no authority—and Moving Defendants cite none—that the County is charged with knowledge of what the USAO learned during its investigation.

[2] The Court declines to adopt the narrow definition of “benefit” proffered by Moving Defendants.

Judge Bruce G. Iwasaki

Department 58