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Former City of Atlanta Workers Comp Claims Administrator Found Liable for Fraudulently Concealing $1.2M Performance Bonus from Consultant

Posted by Steve Silver on Jun 8, 2015, 6:52:00 PM


 

Atlanta, GA—A Fulton County Superior Court jury found that the company that administered workers compensation and other benefits claims for the City of Atlanta fraudulently concealed $1.2 million the City paid it as a performance bonus from a consultant that was entitled to a percentage of the payment as part of its fee. Nebo Ventures LLC v. Novapro Risk Solutions LP (2011CV202767)

According to testimony in the case and other records, Nebo, owned by Kevin Miles, entered into a five-year agreement with Ward North America, the predecessor of NovaPro, to assist Ward in securing a claims administration contract with potential customers, including the City. The contract provided that Nebo would receive payment only in the event NovaPro was awarded a contract, and the fee, as set forth in a separate addendum, would be 5% of the adjusted gross revenue Ward received from the City, to be paid Nebo on an ongoing bases. The fees owed Nebo would continue past the expiration date of the contract between Nebo and NovaPro and would also apply to any extension or renewal of Ward’s contract with the City of Atlanta.

Click Here FREE Georgia Trial Video Samples The Nebo contract also prohibited Ward from trying to “circumvent” the payment of fees to Nebo and listed certain examples. These examples included causing payments to be made to an entity other than Ward.

In 2004, the City awarded its workers compensation and other benefits administration to Ward in a contract that was renewed and extended until 2009. In 2006, Ward changed its name to NovaPro. In 2009, the City requested bids for a new contract for claims administration under somewhat different conditions than the 2004 contract. After the bid process was completed, the City awarded the new contract to NovaPro through 2018. NovaPro continued to pay fees to Nebo until 2011, when it sold its assets, including the contract with the City of Atlanta, to Carl Warren and Company and ceased doing business.

Nebo subsequently filed suit against NovaPro seeking damages under three different theories. First, it contended that NovaPro underpaid it while the 2004 contract was in effect. Second, it contended that NovaPro fraudulently concealed the receipt of $1.2 million in performance bonus payments from the City in 2005 and 2006 and that it was entitled to its fees for those payments, as well as general damages for the concealment. Third, it contended that NovaPro’s selling its assets to Warren in 2011 constituted an attempt to circumvent the original agreement with Nebo.

As he began his opening statement, Nebo’s attorney Matt Martin told the jury, “The evidence at times may seem complicated; the transactions at times may seem complicated, but this case is not complicated. In essence, this case is about two things: keeping your commitments and telling the truth. You’ll be asked to determine at the end of the trial if the defendant kept its commitments to my client and if the defendant told through the truth. … Throughout the trial, I’ll ask you to keep those two things in mind.”

Martin outlined the evidence in support of each of Nebo’s claims. As far as the underpayments under the 2004 contract were concerned, Martin claimed that NovaPro improperly deducted from adjusted gross revenue certain payments NovaPro and a related company received when it calculated the amounts due Nebo.

The original lawsuit against NovaPro did not include any fraud claims. However, according to Martin, during discovery Nebo discovered that the city had paid NovaPro $1.2 million in performance bonuses during 2005 and 2006. However, NovaPro did not include these bonuses in the statements they periodically provided to Nebo, nor did they initially reveal the bonuses during discovery. In addition, when asked by Miles about whether bonuses were paid, NovaPro officials denied receiving any bonuses.

As far as the 2009 contract was concerned, Martin said that Kevin Miles talked to NovaPro in 2008 about the expiration of the contract with the City of Atlanta. NovaPro COO Russ Whitmarsh was concerned that the city might award the 2009 contract to another company and sought Miles’s help. On February 13, 2009, after a series of discussions with Miles, Whitmarsh sent Miles an e-mail stating “I will commit to extending your current agreement if we get the renewal.”

According to Martin, it was only after NovaPro sold its assets to Warren that it stopped making payments to Nebo, claiming that the earlier e-mails were only negotiations. Martin questioned this, “Think about this. If it wasn’t a commitment, why did the defendant continue to pay Mr. Miles for two years until they sold all their assets ... And ask yourself this when you’re listening to that argument: At no time prior to June 2011 did the defendant question Nebo Ventures’ rights to continued payment…”

In his opening statement, James Standard, the attorney for NovaPro disputed Martin’s characterization of the case. As far as the payments Ward deducted, Standard said that those were not actually part of the revenues to be included in the contract because they were to be paid to preapproved minority and female business partners of Ward. In Standard’s view, once those payments were properly excluded, the case was merely a matter of reconciling the accounting. Once all the payments were reconciled, NovaPro had actually overpaid Nebo and Miles approximately $1700 (NovaPro filed a counterclaim in the case against Nebo and third party claim against Miles for that amount).

According to Standard, the City of Atlanta could no longer renew its earlier contract with NovaPro in 2009. Instead, the city issued an RFP, and NovaPro and others submitted bids. The contract awarded to NovaPro was thus a new contract for which Nebo was not entitled to any fees. Despite this, NovaPro, which had Miles listed as an employee so he could qualify for healthcare benefits, continued to keep him on the company’s payroll for another two years. At that time, NovaPro had paid Miles and Nebo in full all the moneys owed, including the fees on the performance bonuses (and actually overpaid $1700), so they stopped making payments to Miles and Nebo at that time.

Standard also noted that Miles did not ask for an accounting from NovaPro, as was his right, until the lawsuit was filed. Standard then went on, “Why? Because he wasn’t even paying attention to his contract…Despite the fact that Mr. Miles had an obligation and committed to using commercially reasonable efforts to help get NovaPro business, he decided at the outset before the ink was dry that he was not going to do that.”

Standard added that, because Miles was dissatisfied with the amount of money he stood to make on the City of Atlanta contract, he decided not to make any further efforts to obtain business for NovaPro, but, instead, entered into agreements with three other companies for his services.

Kevin Miles testified and clarified some of the points raised in the attorneys’ opening statements. He testified that his business was “process consulting,” assisting businesses in the procurement of government contracts. He advised businesses on the factors that were important to each government entity and assisted them in putting a bid together. After Shirley Franklin was elected Mayor of the City of Atlanta in 2001, Miles believed that she would be amenable to outsourcing the administration of workers’ compensation claims to save money. Miles stated that he accompanied City of Atlanta officials to Philadelphia, where a similar program was in place. Eventually, the City of Atlanta, with Miles’s urging, decided to outsource its Workers Compensation and other benefit administration.

Miles further testified that, under the terms of Nebo’s contract with Ward, he would receive payment only if Ward was awarded a contract with the City of Atlanta. He agreed with Ward on a fee payment arrangement that placed him on Ward’s payroll, so he could qualify for healthcare benefits. However, he never signed an employment contract with Ward or Novapro and was never an employee of either company.

Miles said that the contract entered into with Ward did not require Nebo to seek out any other customers, and, in fact, he needed Ward’s permission to approach any other potential customers on its behalf. Miles added that, prior to the lawsuit being filed in 2011, no one from Ward or Novapro expressed any concern about the work he had done

Miles acknowledged that he had a right to conduct an audit but stated he did not do so because he did not want to “rock the boat” and anticipated getting other business from NovaPro and because he thought that NovaPro officials were being truthful with him.

During cross examination by James Standard, Miles acknowledged that he had expressed concern about some of the payments made by the City of Atlanta that were deducted from the calculations of Nebo’s fees. Despite this he declined an offer by a NovaPro official to make the company’s records available to Miles.

The jury returned a verdict in favor of Nebo in the amount of $492,104 on its breach of contract claim and $102,224 in actual damages and $235,000 in general damages on its fraud claim, for a total of $829,328, but did not award any punitive damages. The jury also found Nebo entitled to attorney fees, which will be determined by the judge later. In addition, the jury found against NovaPro on its counterclaim and third party claim against Nebo and Miles.

Representatives for the parties could not be reached for comment prior to the publication of this article. Steve Silver can be reached at ssilver@cvn.com.


Related information:

Attorneys involved in the case include R. Matthew Martin of Atlanta's McKenna, Long & Aldredge for plaintiff and James Standard of Atlanta's Hall Booth Smith for the defense.

 

Watch on-demand video of the trial as soon as it becomes available. 

Topics: Commercial Law, Georgia, Nebo Ventures v. NovaPro Risk Solutions