Government Contracts

Fluor Corp. Agrees to $1 Million False Claims Act Settlement for Unlawful Lobbying Efforts

April 8, 2013 | Greene LLP

Fluor Hanford (“Fluor”), a company contracted by the U.S. Department of Energy to train federal emergency management personnel, will pay $1.1 million to resolve claims that it defrauded the government by using appropriated money to lobby the federal government for yet more funding in violation of the False Claims Act. Fluor operated the Hanford Training Center (the “HAMMER” center) under contract with the Department of Energy from 1996 to 2009, and the alleged fraudulent lobbying occurred from 2005 to 2008. Fluor has denied violating any representations made to the government in order to secure the contract and further denies violating federal ethics laws. Initially, according to the government’s False Claims Act complaint, Fluor focused on expanding the scope of its operation by marketing the training center to regional first responders such as the Seattle Fire Department. When these efforts proved inadequate to increase the profitability of the training facility, Fluor hired two lobbying firms, Congressional Strategies and Secure Horizons Consulting, to promote the HAMMER center. The government alleged that these consulting firms lobbied members of Congress and federal agencies to increase appropriations in agencies’ budgets for HAMMER. The consulting firms were paid substantial sums for their services; documents filed in the case show that Congressional Strategies was paid $398, 164, while Secure Horizons was paid $278,148.

The government claimed that Fluor certified it would not use any taxpayer funds for lobbying purposes, and thus claims for payment pursuant to its contract with the Department of Energy violated the False Claims Act. Companies seeking to secure government contracts must agree to abide by a whole host of conditions and certify compliance with a constellation of federal laws in order to be awarded any contract. Under the False Claims Act, a government contractor may be liable when seeking reimbursement in a number of contexts: defective performance, failure to perform according to specifications set out in the contract or otherwise provided for by law, or non-compliance with other federal statutes and regulations (such as federal ethics laws). In this case, the government alleges that Fluor Hanford expressly certified as a condition of the contract that it would not use appropriated funding to lobby for additional congressional appropriations, and thus claims for payment pursuant to the Department of Energy contract constitute false claims under the False Claims Act.

The False Claims Act imposes liability when a person submits a false claim for payment to the government or when a false claim is submitted to reduce or eliminate a liability owed to the government. Moreover, the knowing retention of overpayments can also trigger False Claims Act liability. When a relator files a complaint, the government may review the allegations and elect to intervene in the litigation; however, the government does not always do so. Even if the government does not intervene, a relator may proceed privately. If successful, relators stand to recover between 15% and 30% of any final judgment or settlement. In the year 2012 alone, the United States saw a record $5 billion in False Claims Act recoveries. The Act allows for civil penalties of as much as $11,000 per violation in addition to trebling of damages.

Alcatel-Lucent Agrees to Pay $4.2 Million to Resolve False Claims Act Allegations

September 25, 2012 | Greene LLP

A subsidiary of Alcatel-Lucent, Lucent Technologies World Services Inc. (“LTWSI”), has agreed to a $4.2 million settlement to resolve all allegations brought in a False Claims Act (“FCA”) suit against the company. Alcatel Lucent is a French global telecommunications equipment corporation, and LTWSI contracts with the U.S. Department of Defense to provide communications equipment in the ongoing U.S. effort to promote a stable government in Iraq. According to the government’s complaint, LTWSI submitted misleading testing certifications to the Army pertaining to the design, construction, and modernization of Iraq’s emergency communications system. The government became aware of the allegations as a result of a whistleblower complaint filed under the qui tam (whistleblower) provisions of the False Claims Act filed by a former contract manager for the project in December of 2008.

In 2004, the U.S. Army awarded LTWSI a $250 million to build the emergency communications system, called the Advanced First Responder Network (AFRN), a 911 emergency response and first responder communications system designed to enable Iraqis to contact police, fire and medical assistance in emergencies. The False Claims Act complaint alleged that the company submitted claims for payment for equipment, services, and contract performance award fees pursuant to the AFRN contract based upon erroneous certifications that LTWSI had performed and completed testing of some of the project’s radio transmission sites as well as validation of the network as a whole. The tests were required under the contract to ensure the network’s proper functioning before the Army accepted the product and transferred control of the system to the Iraqi government.

Under the qui tam provisions of the False Claims Act, private whistleblowers with knowledge of fraud against the government may file legal claims on behalf of the government. The Act imposes liability on individuals and contractors for the submission of false claims for payment, as well as the retention of over-payments from the government. After whistleblowers (known as “relators”) file suit, the government has sixty days to investigate the allegations in the whistleblower complaint and determine whether or not to intervene in the litigation. Although the government may elect to intervene, it does not always exercise this right, and relators may proceed with their legal claims with our without the aid of federal investigators. Victorious relators stand to recover between 15% and 30% of any final judgment or settlement. Fraud in the performance and enforcement of defense contracts is a common cause of action under the False Claims Act, and the whistleblower in the LTWSI case will receive a $758,000 award for his participation in the litigation.

T-Mobile Ordered to Pay Whistleblower $345,000 for Retaliation

August 10, 2012 | Greene LLP

The U.S. Department of Labor has ordered T-Mobile USA, the Washington-based cellphone company, to pay more than $345,000 to a whistleblower who raised concerns that international business customers were being fraudulently charged for roaming outside of the network. Although the Labor Department has not specified the exact amount by which customers were overcharged, it has confirmed that the damages reached into the millions. The government investigation was led by OSHA’s Seattle office, and found that T-Mobile terminated the whistleblower in retaliation for reporting the concerns of fraud in violation of the Sarbanes-Oxley Act, a corporate accountability statute passed by Congress in 2002. The charges T-Mobile has been ordered to pay include $244,479 in back wages and interest, $65,000 in punitive damages, and $36,493 in attorney’s fees. T-Mobile has been ordered to reinstate the employee and train its other workers on the whistleblower provisions in Sarbanes-Oxley. T-Mobile is expected to appeal the Labor Department’s order.

In addition to mandated whistleblower programs under the purview of various government agencies, whistleblowers may file suit under the False Claims Act (“FCA”). The FCA is a federal statute with qui tam provisions that allow relators (i.e., whistleblowers) to file civil claims on behalf of the government for fraud. A person is liable under the FCA for submitting a false claim to the government, either to obtain payment or to reduce or eliminate a liability owed to the government. As is true for most agency-based whistleblower programs, the False Claims Act contains robust provisions which protect whistleblowers against retaliation from their employees. Any contractor, agent, or employee who makes lawful efforts to stop a violation of the FCA may file suit under the anti-retaliation provisions, even if the whistleblower has not filed an FCA claim.

After a relator files a claim, the government reviews the allegations in the complaint and determines whether or not to intervene in the litigation. Even if the government declines to intervene, however, a relator may proceed with his or her private claims. Victorious relators stand to recover between 15% and 30% of any final judgment or settlement. Whistleblower suits under the False Claims Act have proven remarkably successful at rooting out fraud against the government, with total recoveries expected to exceed $8 billion for the year 2012 alone.

Federal Court: Contracts Tainted By Fraud Trigger False Claims Act Liability

August 9, 2012 | Greene LLP

In a decision released on August 6, 2012 in the case of United States of America v. BNP Paribas SA; BNP Paribas AMERICA; BNP Paribas Houston Agency; and Jovenal Miranda Cruz, the United States District Court for the Southern District of Texas, Houston Division allowed the government’s lawsuit alleging banking fraud under the False Claims Act (“FCA”) to move forward, denying the defendants’ motions to dismiss. The defendants, various divisions of the bank BNP Paribas (“BNPP”), are alleged to have engaged in a scheme to defraud the Commodity Credit Corporation (“CCC”). The CCC is a federally chartered corporation within the United States Department of Agriculture (“USDA”) that administers a Supplier Credit Guarantee Program (“SCGP”), which extends credit guarantees to eligible commodity exporters. Under the program, exporters assign to a financial institution both an importer’s promissory note and the exporter’s right to payment, and the CCC guarantees payment to the financial institution. The government’s complaint alleges that BNP, largely through the initiative of defendant Cruz, who was serving as VP and Manager of Trade Finance for BNP in Houston, entered into a series of Master Purchase and Sale Agreements (“MPSAs”) with several United States exporters pursuant to which BNPP agreed to provide financing to the Exporters in exchange for receipt of payment obligations from a series of corresponding Mexican importers and SCGP guarantees for those payment obligations. Because the exporters were owned and/or controlled by Mexican national Pablo Villareal Cantu (“Villareal”), who also owns the importers with which the exporters enter into commerce, the Villareal exporters are ineglible for participation in the SCGP program. The SCGP does not guarantee payments to exporters that are directly or indirectly owned or controlled by the foreign importer or by a person or entity that owns or controls the importer. According to the United States’ complaint, the Villareal exporters and importers submitted false documents to the CCC, as a result of which they received SCGP guarantees. Subsequently, the guarantees and importers’ payment obligations were assigned to BNPP. The arrangement provided that BNPP would extend a line of credit to the exporters up to the amount of the importer payment obligations, minus a fee. After certain importers failed to make over $78 million in payments owed to BNPP, the banks filed claims with the CCC to recover their losses. The fraudulent CCC claims are the gravamen of the government’s complaint, constituting the false claims that gave rise to liability under the FCA.

The BNPP defendants, including Cruz, filed motions to dismiss in the case, both for failure to state claims for which relief can be granted and for failure to plead fraud with particularity pursuant to Rule 9(b) of the Federal Rules of Civil Procedure. The defendants claimed that, taken on their face, the government’s pleadings affirmatively demonstrated that the FCA’s six year statute of limitations barred the claims. Moreover, the defendants argued that the three year equitable tolling period provided for in the statute did not apply. The court rejected these arguments, and additionally found that a federal law originally dating back to the World War I period, the Wartime Suspension of Limitations Act (“WSLA”), 18 U.S.C. § 3287, applied to civil claims under the FCA and thus the statute of limitations was suspended at any rate. The WSLA was amended in 2008 to apply not only during times of war, but also “‘[w]hen… Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)).'” The court’s finding on the applicability of the WSLA to civil FCA claims may be of great import to whistleblowers.

At the heart of the case, however, was the defendants’ contention that technically “true” claims submitted to the government pursuant to fraudulently-induced contracts could not constitute false claims as a matter of law. The court roundly rejected this argument, underscoring that fraudulent inducement to contract does indeed result in FCA liability. Since the exporters and importers in the BNPP case knowingly submitted false claims in order to qualify for the CCC guarantees in the first place, any claims registered pursuant to the guarantees are tainted by fraud and give rise to FCA liability.

Taking Out the Trash: A Garbage Collection Whistleblower and the Need for State FCAs

May 31, 2012 | Greene LLP

An imbroglio involving an alleged kickback scheme perpetrated by employees of a San Francisco-based garbage collection company has shone a spotlight on the perils faced by individuals who go public with information concerning potential fraud committed against the government, and the importance of robust protections at all levels of government for whistleblowers.

Brian McVeigh was initially hired by the garbage collector, Recology, in 2000, and received positive performance evaluations. He was later transferred to a sorting facility to oversee a California Redemption Value (CRV) Buyback Center operated by the company. Recology has a monopoly with the City of San Francisco, and receives millions of dollars in diversion incentive bonuses from the State of California to participate in the buyback program. As a manager at the CRV Buyback Center facility, McVeigh’s responsibilities included preventing fraud and theft of CRV recyclable materials. In that capacity, he became aware of a fraudulent scheme in which Recology employees were inflating CRV weights, manipulating the figures in order to qualify for the bonuses from the state. McVeigh was summarily terminated in 2008 after bringing the fraud to the attention of Recology management and the local authorities.

McVeigh has filed a civil claim against his former employer under California’s False Claims Act (“FCA”), alleging that Recology management was likely involved in the scheme and that the termination was retaliation for his reporting of the wrongful conduct to the authorities. Both the fraudulent scheme on the part of the garbage collection company, a contractor which generates $220 million in annual revenues from local San Francisco ratepayers as an unregulated monopoly, and the retaliation are actionable under California’s False Claims Act.

First Circuit Reverses Dismissal of Case Concerning Fraudulent Research Grant Application

May 11, 2012 | Greene LLP

A federal appeals court in Boston, Massachusetts issued a decision on Monday, reversing a federal district court’s earlier decision in a False Claims Act case filed by a whistleblower against Brigham and Women’s Hospital, Massachusetts General Hospital, and two doctors heading the process of researching and preparing an application to the National Institutes of Health for federal funds to research Alzheimer’s disease.

Dr. Jones filed the lawsuit under the qui tam provisions of the False Claims Act which allow private citizens to bring an action on behalf of the United States for violations of the False Claims Act. Jones alleged that the hospital made false statements in the grant application in violation of the False Claims Act. In November of 2010, the federal district court below ruled against Jones and in favor of the hospital, holding that no genuine issue of material fact existed as to whether false statements in the application both existed and were known of. Jones then appealed to the United States Court of Appeals for the First Circuit, finding that the district court did not properly consider certain expert testimony and that genuine issues of material fact existed as to how data was collected and obtained from studies, and if such data was in fact falsified as contended by Jones, whether a reasonable jury would find it material to the alleged false statements and whether the defendants knowingly used the false data in violation of the False Claims Act.

The case ultimately highlights interesting questions concerning what courts may expect from qui tam relators, more commonly referred to as whistleblowers, when seeking to prove False Claims Act liability in cases where fraud infiltrates the research and preparation of information and data submitted in an application for highly sought after federal funds for major medical research projects.

Fraud in USAID Bidding the Subject of False Claims Act Settlement with International Construction Company

March 21, 2012 | Greene LLP

Harbert Corporation and its affiliated entities reached an agreement with the United States Department of Justice to settle long-standing False Claims Act allegations. According to the settlement, the international construction company had conspired to rig the bidding process for government contracts in order to maximize private profits at the expense of the government and taxpayers. The settlement will recover $47 million on behalf of American taxpayers.

Harbert and its affiliated entities engaged in the bidding process for a construction contract to build a sewer system in Egypt, a project funded with taxpayer dollars by the United States Agency for International Development (“USAID”). Based upon information provided by a whistleblower, who first brought allegations of wrongdoing to light in a lawsuit filed under the qui tam provisions of the False Claims Act, the Government suspected Harbert of collusion through paying off other companies to submit intentionally high bids or withholding bids.

The False Claims Act prohibits an individual or organization from making false claims, or causing a false claim to be made, to the federal government. To aid in prosecuting instances of False Claims Act violations, the government encourages potential whistleblowers to report violations by coming to the government with information and by filing a suit on behalf of the federal government. Whistleblowers may receive up to 30 percent of the recovery obtained by the government as a reward.

Food Safety Fraud: New Protections for Food Industry Whistleblowers

January 3, 2011 | Greene LLP

With a 215 to 144 vote, the U.S. House of Representatives passed the Food Safety Modernization Act, with only minor changes to the Senate’s version of the bill. With President Obama expected to sign off, the Act will soon become law. The chief purpose of the Act is to vest the Food and Drug Administration (FDA) with increased authority to monitor food safety. Until the law is enacted, the FDA does not have direct authority to order food recalls; typically, the agency negotiates terms of voluntary recalls. In the wake of massive health scares over lettuce, peanut, and spinach in the last few years, the FDA will have increased authority to intervene.

The Act protects whistleblowers employed by companies “engaged in the manufacture, processing, packing, transportation, distribution, reception, holding or importation of food.” Continue reading ›

Fraud Case Asserting Substandard Pipe Strength Moves Forward Despite Delaware Withdrawal

October 15, 2010 | Greene LLP

Delaware recently withdrew its intervention in a False Claims Act case filed against J-M Manufacturing. Whistleblower John Hendrix, a former engineer for J-M Manufacturing in New Jersey, filed the suit against the manufacturer in 2006. Virginia, Tennessee, and Nevada remain in the suit, as well as 47 municipalities and water districts. In his complaint, Hendrix asserted that he was fired in retaliation less than two weeks after writing a memo alerting the company to substandard pipe strength. Continue reading ›

Oil Companies Underpay Royalties on Government Leases

August 21, 2010 | Greene LLP

Dominion Oklahoma Texas Exploration and Production, Inc. (Dominion) and Marathon Oil have agreed to pay $2.2 and $4.6 million to the federal government to resolve allegations that the companies underpaid royalties on leases with the federal government and Native American Tribes. Many oil companies drill for oil on lands owned by the federal government or Native American Tribes. When they drill on this land, they operate under a lease with the government that requires the companies to pay royalties based on the amount of oil extracted. According to the government, Dominion and Marathon Oil engaged in a systematic campaign to underpay these royalties. Continue reading ›