Lawsuit previously filed under seal says Frontier misused millions in federal funds

By Kyla Asbury | Jul 20, 2016

CHARLESTON – A 2014 lawsuit that was filed under seal, which was lifted this week, alleges that Frontier West Virginia Inc. misused millions of dollars in federal stimulus funds.

Kenneth Arndt, Dana Waldo, Mark McKenzie, Kelly Goes, Jimmy Gianato and Gale Given were also named as defendants in the suit.

The lawsuit was filed May 7, 2014, in the U.S. District Court for the Southern District of West Virginia. A first amended complaint was filed July 18.

Citynet claims the defendants misrepresented that the proposed project complied with NOFA because no private entity could afford to build the $42 million proposed network and that the network would not be built “but for” the federal grant despite knowing that Frontier had already committed to spend $279 million to upgrade its facilities and infrastructure in West Virginia in order to gain approval of the Verizon merger.

“The defendants further misrepresented that the broadband services purchased by the State of West Virginia from Frontier/Verizon could be resold by the State of West Virginia to individuals and private businesses when in fact they could not be resold,” the complaint states. “Thus, the CAIs that received broadband under the WVEO project would be the ultimate end-user of only Frontier/Verizon services which in turn made the project a Last-Mile project.”

Despite marketing the WVEO application as a “middle-mile” solution, Goes advised Citynet that $40 million of the funds were going to be given to Frontier to construct “tails” to government facilities from the nearest Frontier hub or similar facility and that the construction of the “Last Mile” tails would constitute the full extent of fiber construction under the WVEO’s plan, according to the suit.

Citynet claims the overall effect of the misrepresentation in the WVEO grant application led to the grant being awarded to the WVEO for the sole benefit of Frontier.

Frontier caused the federal government to pay 365 Frontier invoices that included prohibited indirect costs and attempted to obtain reimbursement for indirect costs before Given became the Chief Technology Officer, but was denied by Col. Michael Todorovich who advised the Grant Implementation Team and WVOT that indirect costs were not reimbursable under the grant, according to the suit.

Gianato requested that Todorovich create a “bucket of money” that could be accessed by the state at any moment with no oversight or preapproval to obtain the funds and Todorovich refused to allow the BTOP funds to be accessed unless it was to pay for construction that had already been completed.

Citynet claims on July 1, 2012, Given, the former president of Verizon, was appointed as the new State Technology Officer and immediately took exclusive control over approving Frontier’s invoices for the BTOP project. Within one month, every one of Frontier’s invoices that were submitted for payment contained a “loadings” charge, which, per the invoices, was for “allocated indirect costs such as vehicles, accounting, administration, etc.”

In many instances, the indirect cost fee was higher than the original total cost estimate for the fiber build and there were 365 separate invoices with loadings fees, totaling $4,553,387.31, according to the suit.

“Even though Frontier often ended up building much less fiber than was originally estimated, its final charges were substantially higher than the original estimate,” the complaint states.

Citynet claims in 2010, West Virginia received $126.3 million in federal stimulus funds to provide high-speed Internet to 1,064 public facilities. Approximately $40 million of that was set aside to build a fiber-cable network.

Citynet claims Frontier was supposed to build an “open-access middle-mile network” that linked public facilities to Frontier “central office” hubs, where other Internet providers could hook up to the network and serve customers in rural markets.

Instead, it constructed a “last mile” network that linked the buildings to the company’s existing fiber utility poles, “essentially rendering the newly constructed facilities useless to competitors,” according to the suit.

“Frontier did not want to build the 915-mile open-access middle-mile network because it would be catastrophic to Frontier’s business in that it would allow competition from other broadband service providers,” the complaint states.

Citynet claims Frontier also engaged in a practice of billing the federal broadband grant for material and labor it did not provide, and for fiber lengths that were not constructed.

The Federal Communications Commission ranked West Virginia 48th in the nation for broadband access before the state received its $126.3 million stimulus grant.

After the project was completed, West Virginia ranked 53rd among 50 states, Guam, Puerto Rico and the District of Columbia, according to the suit.

Citynet is seeking compensatory damages, civil penalties and pre- and post-judgment interest. It is represented by Benjamin L. Bailey and Rebecca L. Donnellan-Pomeroy of Bailey & Glasser; and Nicholas S. Preservati of Spilman Thomas & Battle. The United States is represented by John Fulton Gianola and Jennifer M. Mankins of the U.S. Attorney’s Office; and Augustine Martin Ripa and Charles D. Schmitz of the U.S. Department of Justice.

The case has been assigned to District Judge John T. Copenhaver.

U.S. District Court for the Southern District of West Virginia case number: 2:14-cv-15947

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