California canceled a $456 million deal for N95 masks in 2020. Now it’s getting sued
Two years ago, during the frantic beginning of the COVID-19 pandemic, California officials approved a rush order for N95 masks and wired $456 million to a startup supplier.
The deal collapsed within hours after questions surfaced about the supplier’s credibility, and the state was able to retrieve its money. But the fallout from the botched mask purchase continues to haunt the state.
On Thursday the state was sued for $5.9 million by banking giant JPMorgan Chase for legal fees the bank says it incurred after it helped halt the wire transfer to the supplier, Blue Flame Medical LLC.
In its lawsuit, JPMorgan said it was “pleased to have been able to help California recover its funds” — but it was forced to take the state to court after its request for reimbursement was turned down by the Department of General Services last fall.
Filed in Sacramento County Superior Court, the lawsuit represents a potentially costly epilogue to a particularly embarrassing chapter in Gov. Gavin Newsom’s administration’s early efforts to contain the coronavirus.
Emails obtained by The Sacramento Bee showed how executives with Delaware-based Blue Flame pressured state officials to wire the money to secure the precious N95 masks — or risk losing the product to a customer elsewhere.
“Literally minutes matter,” company co-founder John Thomas said in an email to the Department of General Services in early spring 2020.
JPMorgan provides banking services to State Treasurer Fiona Ma’s office. In its lawsuit, first reported by Courthouse News, the bank says the treasurer’s office originated the wire transfer of $456 million, representing a 75% down-payment on 100 million masks.
At the state’s direction, JPMorgan wired the money to Blue Flame’s bank, Chain Bridge Bank, on March 26, 2020. But both banks raised questions about Blue Flame’s credibility with officials in the treasurer’s office. Among other things, Chain Bridge noted that Blue Flame had opened its account just a day earlier.
After the state decided to cancel the wire transfer, Chain Bridge sent the money back to JPMorgan, and the state had its money back. That evening, an unnamed deputy treasurer emailed JPMorgan, saying the bank had “once again lived up to its reputation of watching out for its clients’ interests,” according to the lawsuit.
Blue Flame fought back, however. Even as the state of Maryland canceled an order, and the Washington Post reported that the Justice Department was launching an investigation, the startup company sued Chain Bridge Bank over the failed California deal.
Chain Bridge turned around and sued JPMorgan. The two banks settled, with JPMorgan agreeing to pay the smaller bank $5.9 million for legal costs. Now JPMorgan is demanding that the state pay up.
The treasurer’s office, which is named as a defendant in the suit, had no immediate comment.
This story was originally published February 25, 2022 at 10:21 AM.