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Firm Ordered to Pay MTA $5.3 Million

Metal subcontractor Oved & Associates submitted over 100 phony claims during construction of the Red Line, a judge finds.

June 29, 2004|Caitlin Liu | Times Staff Writer

A judge has ordered a metal subcontractor to pay the Metropolitan Transportation Authority $5.3 million in damages, penalties and legal fees for violating federal law and submitting more than 100 fraudulent claims over the construction of two Red Line subway stations.

Before issuing his order, Los Angeles County Superior Court Judge Wendell Mortimer Jr. also found that Oved & Associates Construction Service Inc. had engaged in litigation abuses, including deleting financial records from a computer hard

drive that MTA lawyers had sought as evidence.

MTA officials Monday hailed the award as a victory underscoring their new get-tough approach against contractor fraud.

"Ten years ago, every contractor in town thought they could rip off the MTA. I don't think that's the case today," said Los Angeles County Supervisor Zev Yaroslavsky, chairman of the agency's board.

These days, the MTA wants "to send a message to the contractor community: 'If you act unethically, or if you cross the line, you will pay the price,' " Yaroslavsky said. "We will go to any length, including legal action, to make sure taxpayers aren't defrauded."

But an attorney for Oved called the default judgment, which was handed down Thursday, a "travesty of justice" because the judge earlier had barred the company from mounting a defense.

"This is another effort by the MTA to squash any contractor that works for it that has the audacity to assert a claim for damages," said Ken Coronel, an attorney representing Oved, a Canoga Park company that had been hired to create decorative metal ornamentation for nine Red Line stations.

Coronel, who also represents Oved's president, Mary Harel, and her father, Pinhas Oved, said they would appeal.

The case arose when Oved & Associates filed a lawsuit in 2000 against an MTA contractor, Kajima-Ray/Wilson. Oved & Associates said Kajima owed the company $4 million for extra work it performed at the MTA's North Hollywood and Hollywood-Vine stations.

Kajima sued the MTA for reimbursement, and the transit agency, in turn, filed a cross-complaint against Oved.

During discovery, MTA lawyers obtained evidence that Oved & Associates made misrepresentations regarding its eligibility for programs designed to promote businesses owned by women and minorities.

Obtaining the so-called Disadvantaged Business Entity certification helped it obtain subcontracts, according to the agency.

The MTA also accused the company of taking over a legitimate minority contractor, Star Iron Works, and using it as a front to submit inflated claims.

Mortimer found that Oved had submitted 52 payment requests in violation of Disadvantaged Business Entity regulations and had violated the "Buy America" provisions of the California False Claims Act at least 13 times. The company also had submitted 69 phony change orders and claims.

Each violation subjects the company to a $10,000 fine.

The judge also awarded $308,000 for litigation costs and $1.2 million -- triple the $409,000 the MTA paid to investigate Oved's claims. He doubled the award of attorney fees, to $2 million, because the case involved "an important right affecting the public interest," the judge's order said.

Transit advocates expressed mixed feelings about the award. "It sounds like someone who was gaming the system got caught," said Bart Reed, executive director of the Transit Coalition. "In the past, some of the prior administrations of the MTA ... weren't as aggressive about rooting out fraud."

Construction of some segments of the Red Line subway suffered from delays, budget problems and defects that included sinkholes along Hollywood Boulevard.

In the years since, laws were passed that subjected the MTA to a host of ethics measures. In 2001, the MTA won a $63-million award against another contractor, Tutor-Saliba/Perini, over fraudulent claims. That case is on appeal.

But others faulted the MTA for not having caught the wrongdoing sooner.

"Where was the MTA's quality control at the time [of construction]?" asked John Walsh, spokesman for the transit watchdog group L.A. TWICE. "The MTA didn't discover the problems until after they were sued. To me, this is the tip of the iceberg. We had hundreds of millions of dollars in cost overruns, and this is just a trickle of money back."

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