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ATRA Cheers 5th Circuit Reversal of Record-Setting FCA Verdict
WASHINGTON, D.C., October 3, 2017 – The American Tort Reform Association is cheering a U.S. Court of Appeals for the Fifth Circuit decision last Friday that reversed a record-setting $663 […]
WASHINGTON, D.C., October 3, 2017 – The American Tort Reform Association is cheering a U.S. Court of Appeals for the Fifth Circuit decision last Friday that reversed a record-setting $663 million False Claims Act verdict in a case “so willfully mishandled by the trial judge” that it sunk the Eastern District of Texas into the ignominious rankings of Judicial Hellholes two years ago.
The case, United States ex rel. Harman v. Trinity Industries, arose in 2012 when “relator” (plaintiff) Joshua Harman purported to “blow the whistle” on his once and future competitors at Trinity Industries Inc., alleging that Trinity had knowingly and fraudulently sold to the federal and state governments elements of a highway guardrail system that had been modified in 2005 but not subsequently tested and approved by the Federal Highway Administration (FHWA).
Trinity defended the claim by showing that the design modification was recommended by the system’s engineers at the Texas A&M Transportation Institute (TTI) to “improve the product,” and that the modification was so “insignificant” it did not need to be disclosed. Trinity also pointed out that the FHWA had already investigated for a potential FCA violation and promptly affirmed that the modified product was compliant with the agency’s standards. Accordingly, the federal government declined to join the plaintiff’s FCA lawsuit.
Writing for a unanimous Fifth Circuit panel and citing the U.S. Supreme Court’s 2016 decision in Escobar, Judge Patrick E. Higginbotham explained that a successful FCA claim must show that a defendant’s knowingly false or fraudulent conduct materially caused or could have caused a government loss. And since relevant FHWA regulations allowed TTI “engineers [to] use their judgment to determine that additional testing [was] not needed” to assure the safety of the modified product, Trinity sold the government only the sound, lifesaving guardrail system it had contracted to sell. “Disagreement over the quality of that [engineering] judgment is not the stuff of fraud,” the court said.
More damningly, the appellate court found that Harman had signaled to potential investors his “[intention] to use the proceeds [from the lawsuit] to recapitalize his business and begin manufacturing competing” guardrail elements. The opinion also detailed why the $663 million verdict was both unjustified and without any basis in fact.
“That’s a rather polite way of saying that Mr. Harman’s manipulative abuse of the FCA and our civil justice system was aided and abetted by the trial judge in the Eastern District of Texas,” observed ATRA president Tiger Joyce.
“It’s encouraging that the reputation of an upstanding company, which provides a reliable and affordable product protecting Americans all along our nation’s roads and highways, has appropriately been restored.”
“But even more important, perhaps,” Joyce continued, “is this long-awaited Fifth Circuit decision’s blunt reiteration of the FCA’s original purpose.” Noting that the number of new FCA claims filed annually by private individuals and their lawyers has grown nearly 300% from 1994 through 2015, and that the percentage of government-initiated claims is shrinking, Joyce pointed to text on p. 38 in the opinion:
“Congress enacted the FCA to vindicate fraud on the federal government, not second guess decisions made by those empowered through the democratic process to shape public policy. . . . As the interests of government and relator diverge, this congressionally created enlistment of private enforcement is increasingly ill-served,” especially “[w]hen the government . . . repeatedly concludes that it has not been defrauded . . . .”
“ATRA’s amicus brief to the Fifth Circuit had pointed out that 80% of FCA claims now proceed without the government joining private relators in their allegations against defendants,” Joyce reported. “And even when defendants prevail, they are forced to incur considerable legal expenses.
“Which is why ATRA is hopeful that, with at least four FCA cases now pending before the Supreme Court, the justices will thoughtfully reassert Congress’s original intentions and proscribe much of the statute’s misuse and abuse by scheming individuals looking to get rich at others’ expense.”
He noted the FCA was first enacted to punish and discourage Civil War profiteering and was sometimes known as “Lincoln’s Law.”
“When the government concludes it has not been defrauded, false claims cases should end and there should be no awards for damages made to relators and their attorneys. They are the profiteers of today. Trinity should never have had to appeal such a verdict, much less endure roughly five years of costly, meritless litigation. All judges must ensure that such FCA travesties are not repeated,” Joyce concluded.
The American Tort Reform Association, based in Washington, D.C., is the only national organization dedicated exclusively to tort and liability reform through public education and the enactment of legislation. Its members include nonprofit organizations and small and large companies, as well as trade, business and professional associations from the state and national level. The American Tort Reform Foundation is a sister organization dedicated primarily to research and public education.
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