Academy Bus LLC allegedly defrauded New Jersey Transit out of more than $15 million by under-reporting the number of bus trips that the company missed and charging fees for hours and miles driven for bus trips that never occurred, according to an announcement from New Jersey Attorney General Gurbir Grewal on Monday.
Filed in state Superior Court in Essex County, a whistleblower lawsuit in which the state intervened alleges that Academy engaged in an “extensive multi-year, multi-million-dollar fraud” by failing to report tens of thousands of missed bus trips between April 2012 and Dec. 2018.
The case is the highest dollar-value whistleblower lawsuit in which the state has intervened, according to the Office of the Attorney General.
The Attorney General’s complaint also alleges that Academy’s fraud left riders delayed, if not stranded. Academy’s fraud “caused the riding public to suffer because Academy missed tens of thousands of bus trips on busy Hudson and South Hudson service area bus lines.”
Those two service areas primarily cover the Hudson County waterfront, serve riders in such towns as Bayonne and Jersey City.
“Most of us know how frustrating it can be to wait for a bus that doesn’t show up on time or never appears at all,” said Grewal. “Our complaint against Academy Bus alleges that one reason for those late and missing buses has been a pervasive, multi-year fraud by Academy that not only cost riders their time but also cost NJ Transit many millions of dollars. With this lawsuit, we are seeking justice for the riding public as well as New Jersey taxpayers.”
Academy operates seven bus routes for NJT the Hudson and South Hudson service areas that involve approximately 175,000 bus trips each year for which Academy bills NJT approximately $12 million annually. NJT retains all bus fares that Academy collects along the routes.
Under the contract between the two entities, Academy was required to report the number of bus trips missed for each bus route on a monthly basis. NJT would then deduct an assessment for each missed trip.
Academy also charged NJT fees for miles and hours driven along bus routes it handled for the agency, and couldn’t charge fees for hours and miles driven for buses that did not run.
The complaint announced Monday alleges that Academy overcharged NJT by underreporting to NJT the number of bus trips it had missed for each month and fraudulently billed NJT for miles and hours driven for buses that never actually ran.
Academy’s internal records allegedly tracked two sets of numbers, according to Grewal’s office: the real number of missed bus trips and a significantly lower set of false numbers, which Academy eventually reported to NJT.
The Attorney General’s complaint quotes from text messages between Academy employees where they communicated about how much they would reduce the “RN”/real numbers before sending them to NJT.
According to text messages quoted in the complaint, in one instance an employee proposed reducing the number of missed trips for Sept. 2018 from over 1,800 to just 700. Another employee responded, “Bro bro. It’s 1800 missed, really – we are gambling with this huh?”
For this instance, Academy eventually reported 804.5 missed trips to NJT for that month, allegedly failing to report over 1,000 missed trips.
The gap between the “real number” of missed trips and the number actually reported to NJT shrunk during periods when Academy knew NJT was actively monitoring Academy’s performance, according to the complaint, which also alleges that Academy may have missed so many trips because it was shifting drivers from NJT routes to its more profitable charter bus routes.
A dispatcher for Academy allegedly told Academy’s President and CEO Francis Tedesco that diverting drivers would cause missed trips on NJT routes, to which Tedesco allegedly responded, “I don’t care about NJ Transit.”
In addition to Hoboken-based Academy and its affiliated corporate entities Academy Lines LLC; Academy Express LLC; Number 22 Hillside LLC; and No. 22 Hillside Corp., the complaint named defendants: Thomas Scullin, vice president and chief operating officer for all of the corporate defendants; Frank DiPalma, the controller of each of the corporate defendants; Antonio Luna, formerly an assistant manager at Number 22 Hillside and/or No. 22 Hillside Corp., and now a part-time dispatcher; and Edward Rosario, a general manager at Number 22 Hillside and/or No. 22 Hillside Corp.
With this complaint, Grewal has intervened in a qui tam action filed against Academy by a former Academy Terminal Manager Hector Peralta, who worked at Academy and 22 Hillside for 14 years.
The complaint alleges two counts under New Jersey’s False Claims Act, which allows private parties and relators like Peralto to file lawsuits on behalf of the state and to share in any recovery; and one count of unjust enrichment, seeking treble damages, maximum civil penalties, attorneys’ fees, and costs, and disgorgement of any unlawfully obtained payments from NJT.
In response to a request for comment, Ben Martin, spokesperson for Academy Bus, emailed NJBIZ the following: “The Company response to the complaint filed today by the Attorney General’s office will be submitted in due course to the proper regulatory and legal authorities. The Company will detail its good faith efforts to perform the service in issue and to properly tally and submit “missed trip” information to New Jersey Transit. Prior to this filing, the Company took corrective actions to improve its performance and the Company will continue to work diligently to accomplish that objective. The Company values its relationship with NJTC and regrets that this matter has been moved to litigation.”
Editor’s Note: This article was updated on Nov. 16, 2020 at 3:49 p.m. EST to add comments from Academy Bus.