Academy Bus sued for defrauding NJ Transit out of $15 million

New Jersey has intervened in a whistleblower lawsuit against Academy Bus, which advertises itself as the nation’s largest private transportation company, as well as related entities and individuals, according to a statement by the office of New Jersey Attorney General Gurbir Grewal.

The AG’s complaint alleges the defendants defrauded New Jersey Transit (NJT) out of more than $15 million by vastly underreporting the number of scheduled bus trips the company missed and charging fees for hours and miles driven for bus trips that never happened.

Filed in state Superior Court in Essex County, the lawsuit alleges that Academy engaged in an “extensive multi-year, multimillion-dollar fraud” by failing to report tens of thousands of missed bus trips between April 2012 and December 2018. The case is the highest dollar-value whistleblower lawsuit in which the state has intervened.

Riders ‘stranded

The complaint further alleges that Academy’s fraud also “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. Riders were delayed if not stranded.”

Those two service areas primarily cover the Hudson County waterfront, serving riders in such towns as Bayonne and Jersey City, and include the heavily used Route 119 line for commuters traveling to and from New York 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,” Grewal said in the statement. “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 Bus contract

The complaint includes information about Academy’s contract with NJ Transit.

Academy operates seven NJT bus routes in the Hudson and South Hudson service areas. The NJT routes Academy handles involve about 175,000 bus trips each year. Academy bills NJT about $12 million annually for its services, while NJT retains all bus fares that Academy collects along the routes.

Under its contract with NJT, Academy was required to report the number of bus trips that were missed for each bus route on a monthly basis. An individual “trip” is when a bus travels from one end-point of a route to the other end-point of a route. NJT would then deduct an assessment for each missed trip.

Allegations of overcharging

Academy also charged NJT contractually agreed-upon fees for miles and hours driven along bus routes it handled for the agency. Academy could not charge fees for hours and miles driven for buses that did not run.

The complaint announced Nov. 16 alleges that Academy overcharged NJT in at least two ways. First, by underreporting to NJT the number of bus trips it had missed for each month, Academy fraudulently avoided millions of dollars of missed trip deductions from the monthly invoices, the complaint states. Second, according to the complaint, Academy fraudulently billed NJT for miles and hours driven for buses that had not actually run.

The Attorney General’s complaint describes how Academy’s internal records tracked two sets of numbers — the real number of missed bus trips (which Academy labeled “RN ”) and an adjusted set of false numbers. These false numbers were always significantly lower and were those Academy eventually reported to NJT, according to the complaint.

Quotes from texts

The Attorney General’s complaint quotes from text messages between Academy employees in which they communicated about how much they would reduce the “RN”/real numbers before sending them to NJT.

In one instance, according to text messages quoted in the complaint, one employee proposed reducing the real number of missed trips for September 2018 from more than 1,800 to just 700. Another responded: “Bro bro. It’s 1,800 missed, really — we are gambling with this huh?” Academy eventually reported 804.5 missed trips to NJT for that month, according to the complaint, allegedly defrauding NJT by failing to report more than 1,000 missed trips.

According to the complaint, the gap between the “real number” of missed trips and the number reported to NJT shrunk during periods when Academy knew NJT was actively monitoring Academy’s performance.

Missed trips

The complaint alleges that Academy may have missed so many trips because it was shifting drivers from the NJT routes it covered to its more profitable charter bus routes.

According to the complaint, one witness who worked as a dispatcher for Academy reported telling Academy’s President and CEO Francis Tedesco that diverting drivers would cause missed trips on NJT routes. 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 several individuals as defendants. Thomas F.X. Scullin, Vice President and Chief Operating Officer is named for all of the corporate defendants. Other defendants include Frank DiPalma, Controller of each of the corporate defendants; Antonio Luna, formerly an Assistant Manager at Number 22 Hillside LLC and/or No. 22 Hillside Corp., and now a part-time dispatcher; and Edward Rosario, a General Manager at Number 22 Hillside, LLC and/or No. 22 Hillside Corp.

Filed by former employee

With this complaint, Attorney General Grewal has intervened in a qui tam action filed against Academy by former Terminal Manager Hector Peralta, who worked at Academy and 22 Hillside for 14 years.

The New Jersey False Claims Act allows private parties, or realtors, such as Peralta, to file lawsuits on behalf of New Jersey for violations of the False Claims Act, and to share in any recovery. The False Claims Act provides that the Attorney General may intervene in such an action.

The complaint alleges two counts under New Jersey’s False Claims Act 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.

Primary representatives for the state in the Academy Bus matter are Deputy Attorney General and Section Chief Lara Fogel and Deputy Attorney General and Assistant Section Chief Kenneth Levine.

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