AGC Law in Brief - Vol. 1, No. 4 - September 2015 (Plain Text Version)
A Case to Watch
A Case to Watch: Highway Contractor Appeals $663M False Claims Act Judgment
On August 31, 2015, highway contractors Trinity Industries, Inc. and Trinity Highway Products, LLC (collectively, Trinity) appealed to the U.S. Court of Appeals for the Fifth Circuit a $663,360,750 final judgment entered against them under the federal False Claims Act (FCA). At the conclusion of a six-day trial that commenced on October 13, 2014, the jury rendered a unanimous verdict, finding Trinity “knowingly made, used, or caused to be made or used, a false record of statement material to a false or fraudulent claim” in violation of the FCA. The jury unanimously found that the U.S. government suffered damages in the amount of $175,000,000 as the result of Trinity’s FCA violations.
After denying Trinity’s post-trial motions, the district court entered a final judgment on June 9, 2015 in which it (1) trebled the $175,000,000 damages award to $525,000,000 pursuant to 31 U.S.C. § 3729 and (2) assessed a civil penalty of $8,250 for each of the 16,771 false certifications that the jury found Trinity made in connection with false claims for payment, for a total penalty of $138,360,750. Of the final judgment amount of $663,360,750, 30 percent ($199,008,225) was awarded to the relator, who had proceeded with the prosecution of the FCA action without the participation of the U.S. government, which had declined to intervene in the case. In addition, the relator, as the prevailing party, was awarded attorney’s fees of $16,535,035.75, expenses of $2,300,000 and taxable costs of $177,830.
Trinity’s appeal of this extraordinarily large damages award could set important precedent as to what constitutes the “knowing presentation” of a false or fraudulent claim, statement or record and how damages are calculated in FCA cases.
In the FCA case against Trinity, the relator alleged that Trinity violated the FCA by knowingly and falsely certifying that Trinity’s guardrail end terminals, known as “ET-Plus,” had been crash-tested and approved for federal reimbursement by the Federal Highway Administration (FHWA). According to the relator, in or around 2005, Trinity modified the properties and dimensions of ET-Plus that had been previously approved by the FHWA in 1999. The relator alleged that Trinity did not disclose its modifications of ET-Plus to the FHWA, the FHWA did not approve the modifications, and, therefore, Trinity falsely “certified” that the modified ET-Plus had been approved by the FHWA. According to the relator, these false certifications caused the government to pay money when it reimbursed individual states for the costs associated with installing ET-Plus on federally funded or subsidized highways.
Ultimately, the jury found for the relator and awarded damages using a “benefit of the bargain” calculation propounded by the relator’s expert. The relator’s expert estimated that, after the 2005 modification of ET-Plus, the government paid $218,003,273 to reimburse states for purchases of modified ET-Plus and, because modified ET-Plus had not been approved by the FWHA, it had no ascertainable value other than as scrap metal. Accordingly, the expert argued that the appropriate measure of damages was $218,003,273, reduced by the scrap value of the modified ET-Plus, which was $175,037,890. The jury awarded $175,000,000 in damages. The court then determined that there were 16,771 false claims and applied a $8,250 penalty for each claim.
Trinity is appealing the damages award as both excessive and based on speculation and conjecture. Trinity argues that the relator failed to prove how much the FHWA actually paid in reimbursements for ET-Plus, but instead merely presented an estimate prepared by its expert of the percentage of ET-Plus sales that were federally reimbursed. This estimate was derived by multiplying Trinity’s total ET-Plus sales revenue by the percentage of states’ total highway-related expenditures that were spent on federal highways, and then applying an 80 percent federal reimbursement rate. Trinity contends that these estimates fail to satisfy the requirements that damages awarded under the FCA be “just and reasonable and “based on relevant data.” Trinity is also challenging the relator’s expert’s assumption that ET-Plus has no value other than as scrap, pointing to, among other things, statements by the FHWA that Trinity contends acknowledge that the government received value for the ET-Plus units supplied.
Trinity is appealing the district court’s determination of penalties as violating the Seventh Amendment because the court failed to submit its challenges to several of the claims to the jury for its consideration. Trinity is also challenging the award of damages and the assessment of penalties as violative of the Eighth Amendment’s Excessive Fines Clause.
The Fifth Circuit’s ruling on Trinity’s appeal has the potential to provide significant guidance on the contours of what constitutes a knowing false claim or assertion and the level of proof required to sustain an award of damages under the FCA, as well as the appropriate role of the district court in determining damages and when an FCA judgment crosses the line into being unconstitutionally excessive. In the meantime, the case against Trinity serves as a reminder of the extraordinary risk of taking an FCA case to trial, even when the government has declined to intervene.
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