Feds offer new details of allegations against Zavoral
GRAND FORKS - The U.S. government is opposing efforts to dismiss a federal lawsuit by the East Grand Forks construction company that it accuses of fraud, bringing more specific allegations to light.
It already accuses R.J. Zavoral and Sons of taking over a contract and doing work that should've been given to Ed's Construction, a small, minority-owned firm from Cass Lake.
But the government now offers specific incidents that it says show that Zavoral tried to cover up its takeover by making it seem as if Ed's was doing work that Ed's had "no substantial involvement" in. For example, a project accountant allegedly asked Ed's to document purchases of construction material that Ed's never ordered.
The government was also more specific about all the defendants at Zavoral and how they gave subcontracts to companies they owned without authorization from Ed's, which was supposed to administer the contract.
In trying to have the lawsuit dismissed, Zavoral's April 16 filing criticizes the lack of specifics in the government's complaint, stating, "The government's allegations consist of little more than bald conclusions and labels, not facts."
In a filing on Monday in U.S. District Court in Minneapolis, the government replies that its complaint didn't need such specifics. It simply needed to put Zavoral on notice.
Zavoral has until May 28 to file its response to the government's initial complaint. The hearing on the motion to dismiss is scheduled for June 22.
A $19m contract
Zavoral, a large firm that frequently wins federal contracts, partnered in 2003 with Ed's so it could compete for a Small Business Administration Section 8(a) contract, set aside for small, disadvantaged firms such as Ed's.
But after the partners won the $19.1 million contract to build the Heartsville Coulee Diversion in East Grand Forks, Zavoral prevented Ed's from doing the prescribed work and denied Ed's proper share, the complaint alleges.
The diversion is part of the city's flood protection system.
Zavoral attorney Kyle E. Hart declined comment on Tuesday, saying his client does not want him to comment publicly.
A call to the office of Zavoral President and CEO Peter Zavoral on Tuesday was not returned.
The government says there's a low threshold for details in the initial complaint -- only "some representative examples" of violations are needed -- because its purpose is to give defendants notice so they can prepare a response.
Some of the specifics, though, were included in the response to Zavoral's motion to dismiss.
The government says that "defendants arranged for Ed's Construction to serve as a pass-through in connection with $886,625.00 in materials costs it reportedly incurred, and $646,280.00 in work it reportedly performed, under the Contract... In fact, however, Ed's Construction had no substantial involvement with either item."
In total, the government believes Ed's received $1.7 million less from the contract than it was meant to when the contract was awarded.
Responding to Zavoral's criticism that the government lumps together all the defendants without making specific charges against each, the government says that Peter and John Zavoral paid subcontractors Clay Products and WayCool 3D without Ed's authorization or, perhaps, knowledge.
The two are executives in Zavoral and owners of the subcontractors.
The government says project accountant Craig Pietruszewski, who was supposed to act in the interest of the partnership, in effect, "acted as an agent for RJ Zavoral." In 2005, he signed a form requesting the U.S. Army Corps of Engineers $979,936 for contract work when he knew the form contained false information, the government says.
It was also Pietruszewski who the government says told Ed's Construction to "prepare false documentation to make it appear as if Ed's Construction had ordered $886,625.00 worth of material related to work performed by Ed's Construction."