Friday, October 30, 2015
Tuesday, October 27, 2015
Thomas J. Madigan, Partner, Pepper Hamilton LLP
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.
The FCA provides that any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval,” or who “knowingly makes, uses, or causes to be made or used a false record or statement material to a false or fraudulent claim” is liable to the U.S. government for damages and civil penalties. 31 U.S.C. § 3729(a)(1)(A) and (B). The FCA can be enforced either by the U.S. Department of Justice or by private individuals acting on behalf of the government, formally known as “relators,” but often referred to as “whistleblowers.” Generally, damages in an FCA case are measured under a “benefit of the bargain theory,” i.e., the difference between what the government actually paid and what the government would have paid absent the fraud. Under the statute, damages may be trebled. In addition, the FCA permits the United States to recover penalties, costs and attorneys’ fees in successful cases. Penalties can be between $5,500 and $11,000 for each false claim.
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.
At trial, Trinity presented evidence that, contrary to the relator’s contentions, the FHWA repeatedly affirmed that ET-Plus was compliant with all applicable federal rules and regulations. Trinity also presented evidence that the allegedly false certifications were not made to the government contracting agency and played no part in either the award of the contract or any payment decision thereunder. The allegedly false statements at issue were representations made by Trinity to its customers that ET-Plus was compliant with the applicable government rules and regulations. Trinity disputed the requisite FCA element of causation, pointing to the fact that there was no evidence that the federal government ever saw the customer certifications, let alone relied on them in making its payment decision. Trinity also argued that such statements were not material to the government’s payment decision because, once made aware of the statements, the government investigated and rejected the relator’s allegations and concluded that Trinity was entitled to payment.
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.
Federal District Court in California Holds that Subcontract Provision Binding Subcontractor to Result of Dispute Resolution Under Prime Contract Was Not an Effective Waiver of Miller Act Rights
DVBE Trucking and Construction Co., Inc. v. McCarthy Building Companies, Inc., 2015 U.S. Dist. LEXIS 90052 (N.D. Cal. July 10, 2015)
During the project, the VA issued a notice of suspension of the work, preventing McCarthy and DVBE from beginning work as planned. The work was also delayed due to differing site conditions relating to underground utilities. As a result, both McCarthy’s and DVBE’s work was performed behind schedule, during the winter. Once performed, the work was impacted by adverse weather. McCarthy was also required to perform additional unforeseen work. McCarthy, on behalf of itself and its subcontractors (including DBVE) submitted claims to the VA for additional compensation.
While McCarthy’s claims remained pending with the Civilian Board of Contracting Appeals (“CBOCA”), the DVBE sued McCarthy, Federal Insurance Company and Travelers Casualty & Surety for recovery on the Miller Act Payment bond, breach of contract, account stated and quantum meruit. While the parties initially stipulated to stay the action pending resolution of McCarthy’s action before the CBOCA, they later agreed to lift the stay. Defendants then moved to stay the proceedings pending the outcome of McCarthy’s CBOCA appeal, arguing that Section 11.1 of the subcontract bound DVBE to the result of McCarthy’s proceeding with the VA. Defendants argued that, because the outcome of DVBE’s claim was entirely dependent on the outcome of McCarthy’s pending claim against the VA, the action should be stayed until McCarthy’s claim was resolved. In response, DVBE argued that Section 11.1 of the subcontract was not an effective waiver of its Miller Act claim.
The Court denied Defendants’ motion to stay. It concluded that it was contrary to the intent of the Miller Act to require DVBE to await, and be bound by, the result of a process in which it was not permitted to participate. The Court concluded that Section 11.1 of the subcontract would, if effective, waive DVBE’s Miller Act rights. The Court noted that an effective waiver of the Miller Act must be (1) in writing, (2) signed by the person whose right is waived, and (3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract. The Court also noted that the waiver must be clear and explicit. The Court found that Section 11.1 was not an effective waiver of DVBE’s Miller Act claim for two reasons. First, the subcontract was signed before the work began. And second, it was not a “clear and explicit” waiver of DVBE’s Miller Act rights. As such, the Court refused to enforce Section 11.1 of the subcontract and denied Defendants’ motion for stay of the proceedings.
Article originally posted October 22, 2015 on Constructlaw, an update and discussion of recent trends in construction law and construction, maintained and edited by Pepper Hamilton's Construction Law Practice Group.
Thursday, October 22, 2015
“Houston, we have a problem,” has become a catch-phrase for an impending disaster. Our kickoff speaker literally lived through the moment when it was first spoken. Apollo 13 astronaut, Fred Haise, will describe for us how that crisis was met and provide steps for facing a crisis, whether in space or down here on earth! In addition, Carla Christofferson, AECOM's Executive Vice President and General Counsel, will address building diverse teams.
You will have the opportunity to taste local wines, both during the Sunset Wine Tasting and Welcome Reception at the top of the St. Francis on Thursday evening and on the Napa Valley Getaway on Saturday (ticketed event). A Forum After Dark event on Thursday will be available for night owls. Friday afternoon, you can Escape to Alcatraz for a twilight tour of the infamous island prison in the Bay (ticketed event).
San Francisco is always an incredible location for the Forum's meetings, so be sure to register for the Midwinter Meeting and reserve your room at the St. Francis right away!
Friday, October 16, 2015
|Karl Seelbach, Rob Ruesch, Drew Harris, and Tom Dunn|
Attorneys who want to stay organized and get a leg up on the competition should use technology to their advantage. Consider using a task management app (e.g., Todoist) to organize your projects, assign tasks to your entire team and monitor their progress. Stop printing reams of paper and carrying heavy boxes to depositions. Instead, use electronic exhibits (e.g., AgileLaw) to go paperless. Stop writing your notes on paper. Instead, use a note taking app (e.g., Evernote) to make your notes searchable and shareable with team members. Or at the very least, scan your handwritten notes for safekeeping (bonus: some apps convert your handwritten notes to searchable text). If you’d like more free tech tips or a list of recommended apps for attorneys, contact me at email@example.com or sign up for my monthly newsletter at http://www.doyleseelbach.com/.
Drew Harris walked us through Trial Director for ipads. He demonstrated the "must have" tools for a trial attorney's toolbox and conducted a live demonstration of trial he recently conducted. By the end of the presentation, the vast majority of the attendees raised their hand that they will consider using an ipad for their next trial.
#ABAConstruct #FCLAustin #TheDisputeResolver
Thursday, October 15, 2015
Peter Vosbikian is a Certified Cost Engineer and Certified Forensic Claims Consultant with over twenty years of experience in construction claims consulting. For the past ten years, he has worked with Forum Sponsor Greyhawk. Peter has provided three tips on how to document and prove labor productivity claims.
1. DOCUMENT material quantity installed
Friday, October 9, 2015
Pepperdine Professor Tom Stipanowich spoke in our first plenary session of the day about trends in arbitration and its use. The use of arbitration has declined over the past 10 years in the construction industry.
Will that trend continue? Should it continue? More to the point, how can the problems with arbitration be addressed?
Let us know your thoughts.
Kate Bergin of TEDTalks Manhattan Beach spoke today in Austin about presentations. Specifically, she talked about incorporating stories into presentations as the way to make an excellent impression on your crowd.
Ms. Bergin spoke at the Diversity Breakfast for those of us who made it to the 7 AM start.
Thursday, October 8, 2015
Friday, October 2, 2015
The Supreme Court of the United States To Review California’s Contract Severance Rule as Applied to Agreements to Arbitrate.
As an aside, consider that at issue in this matter was whether there was unconscionability in the arbitration agreement, not whether the plaintiffs were unconscionably induced into making the arbitration agreement. Where the AAA Rules are incorporated into the agreement, as here in Zaborowski, the arbitrator has specific authority to decide “objections with respect to the existence, scope, or validity of the arbitration agreement.” AAA Commercial Rules at R-7. Consider whether the district court could have declined to address the plaintiffs’ unconscionability arguments and left them for the arbitrator to decide. See, e.g., Brennan v. Opus Bank, 796 F.3d 1125, 1127 (9th Cir. 2015) (holding that the determination whether the arbitration clause is substantively or procedurally unconscionable belongs to the arbitrator especially where the AAA Rules are incorporated to the agreement).