Purcell v. Mwi Corporation

..
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
ex rel. ROBERT R. PURCELL,
Plaintiffs,
v. Civil Action No. 98-2088 (GK)
MWI CORPORATION,
Defendant.
MEMORANDUM OPINION
This matter comes before the Court for ruling after a jury
trial. The jury found Defendant MWI Corporation ("Defendant" or
"MWI") liable for violations of the False Claims Act ("FCA"), 31
U.S.C. § 3729(a) (1), (2).
The parties were ordered to submit supplemental briefs
addressing the issue of damages. Plaintiff United States ("the
Government") filed a Motion for Entry of Judgment ("U.S. Mot.")
[Dkt. No. 458]. Defendant MWI Corporation ("Defendant" or "MWI")
filed a Memorandum of Points and Authorities Regarding the
Calculation of Damages ( "MWI Mem. ") [Dkt. No. 459] .
Subsequently, the Government filed a Response to MWI' s
Memorandum ("U.S. Resp. ") [Dkt. No. 463], Relator Robert R.
Purcell ("Relator" or "Purcell") filed a Response to the
Government and MWI' s Calculation of Damages Regarding Entry of
Judgment ("Relator Resp. ") [Dkt. No. 464], and MWI filed a
Response to United States' Submissions ( "MWI Resp. ") [Dkt. No.
465] . After consideration of those submissions, the
representations of the parties at the damages hearing held
December 19, 2013, and the entire record herein, the Court will
now address the issues raised and determine the amount of
damages.
A. Factual Background
In 1992, MWI, a Florida corporation, arranged to sell
irrigation pumps and other equipment to seven Nigerian states.
The total sale price was $82.2 million dollars.
To finance these sales, MWI and the Federal Republic of
Nigeria ("Nigeria") sought and received eight loans from the
Export- Import Bank of the United States ("Ex- Im") , an agency of
the United States that finances and facilitates transactions
between U.S. exporters and international buyers. Ex-Im agreed to
finance the deal and loan Nigeria $74.3 million dollars. Nigeria
would pay back the $74.3 million dollars, as well as interest
and fees, and the individual Nigerian states would pay the
remainder of the $82.2 million dollar price.
Before Ex-Im would approve the loans to Nigeria, it
required MWI to submit a "Letter of Credit Supplier's
Certificate" for each of the eight loans. On each of those eight
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Letter of Credit Supplier's Certificates, MWI attested that it
had only paid "regular commissions" in connection with the pump
sales.
After Ex-Im approved the loans, but before it disbursed any
funds, it required MWI to submit a "Disbursement Supplier's
Certificate." MWI attested on fifty Disbursement Supplier's
Certificates that it had paid only "regular commissions" in
connection with the pump sales. Thus, MWI submitted eight Letter
of Credit Supplier's Certificates and fifty Disbursement
Supplier's Certificates to Ex-Im. 1
In 1998, Relator Robert Purcell, a former employee of MWI,
filed this action against MWI under the FCA [Dkt. No. 1] He
alleged that MWI paid commissions in excess of 30 percent of the
contract prices for the irrigation pumps and equipment to its
long-time Nigerian sales agent, Alhaji Mohammed Indimi. Id.,, 35-37. Purcell alleged that those commission payments were
"irregular" and thus should have been disclosed on all of the
Supplier's Certificates that MWI submitted to Ex-Im. Id.1
MWI argued for the first time in its Response that the
Complaint identified only 48 Disbursement Supplier's
Certificates and did not identify any Letter of Credit
Supplier's Certificates. MWI Resp. at 10. At trial, MWI did not
challenge the Government's evidence or testimony regarding 58
total Supplier's Certificates, and therefore the Court accepts
these figures as correct.
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In April of 2002, the United States decided to intervene,
and filed a complaint which then governed the proceedings
("Complaint") [Dkt. No. 18] . Based in part on the amount of
commissions paid to Indimi, which at the time was estimated to
be approximately $28 million dollars, 2 the Complaint alleged two
violations of the FCA (Counts I and II) and two common law
claims for unjust enrichment and payment by mistake (Counts III
and IV)
The case was litigated for several years before Judge
Ricardo M. Urbina. After Judge Urbina's retirement, the case was
reassigned to Judge Colleen Kollar-Kotelly, and then to this
Court. After resolving many pre-trial motions, the case went to
trial on November 6, 2013.
Counts I and II of the Complaint, the FCA violations, were
to be decided by the jury. It was instructed that, if it found
that MWI had violated the FCA, it was to identify the specific
number of false claims and then "assess the amount of damages,
2
At trial, the Government argued that MWI had paid $25 million
dollars in commissions to Indimi, not $28 million. See, e.g.,
Pls. Opening St., Trial Tr. Nov. 8, 2013, A.M. Session at 25:9-
12 (telling jury it needed "to decide whether MWI knew or should
have known that the $25 million payment to Mr. Indimi was
irregular and that it should have been disclosed"); Pls. Closing
Arg., Trial Tr. Nov. 21, 2013, A.M. Session at 50:20-22 ("$25
million in Ex-Im funds went into the bank account of MWI's
Nigerian agent Alhaji Indimi."); id. at 76:10-12 (suggesting
that amount United States "unknowingly paid to Mr. Indimi," $25
million, be considered as measure of damages) .
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if any, that the [G] overnment sustained because of MWI' s acts."
Closing Instructions, Trial Tr. Nov. 21, 2013 A.M. Session at
41:13:18 (quoting 31 U.S.C. § 3729(a) (1), which states that
defendant is liable for "3 times the amount of damages which the
Government sustains because of the act of that person").
Iri order to assess the appropriate amount of damages, the
jury was instructed, under United States v. Science Applications
Int'l Corp., 626 F.3d 1257, 1278-79 (D.C. Cir. 2010), that
damages were "the amount of money the government paid because of
the false claims over and above what it would have paid had MWI
not made the false claims," and that it would need to "set an
award that puts the [G] overnment in the same position as it
would have been in if the defendant's claims had not been
false." Closing Instructions, Trial Tr. Nov. 21, 2013 A.M.
Session at 41:19-24. 3
On November 25, 2013, the jury returned a verdict for
Plaintiffs on both Counts I and II. The Government then
dismissed Counts III and IV of the Complaint, its common law
claims, with prejudice. Trial Tr. Nov. 25, 2013, A.M. Session at
22:18-20.
3
The Government did not object to the damages instructions. MWI
objected, arguing that the Court should instruct the jury that
the Government also had to prove proximate causation and actual
reliance. Closing Instructions, Trial Tr. Nov. 20, 2013, P.M.
Session at 121:22-25. It had no other objections to the
instruction. Id. 122:10-12.
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B. Standard of Review
Under the FCA, "if [the jury] finds liability, its
instruction is to return a verdict for actual damages, for which
the court alone then determines any multiplier, just as the
court alone sets any separate penalty." Cook Cty., Ill. v.
United States ex rel. Chandler, 538 U.S. 119, 132 (2003) (citing
31 U.S.C. § 3729(a)). Thus, it is now the Court's job to
calculate the "civil penalty of not less than $5,000 and not
more than $10,000, plus 3 times the amount of damages which the
Government sustains because of" MWI' s actions. See 31 U.S. C.
§ 3729 (a)
The "chief purpose of the (Act's civil penalties) was to
provide for restitution to the government of money taken from it
by fraud, and that the device of [treble] damages plus a
specific sum was chosen to make sure that the government would
be made completely whole." United States v. Bornstein, 423 U.S.
303, 314 (1976) (citing United States ex rel. ·Marcus v. Hess,
317 U.S. 537, 551-52 (1943)). In order to make the Government
"whole," the Supreme Court has instructed that "the Government's
actual damages are to be [trebled] before any subtractions are
made for compensatory payments previously received by the
Government from any source." Bornstein, 423 U.S. at 316.
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C. Actual Damages
First, the jury found that MWI knowingly presented 58 false
or fraudulent claims for payment to the Government, in violation
of 31 U.S.C. § 3729(a) (1). Verdict Form, at 1 [Dkt. No. 453].
Second, it found that the amount of damages the Government
sustained because of those claims was $7,500,000. Id.The jury also found that MWI knowingly made 58 false
records and/or false statements that were material to the
Government's decision to pay or approve false or fraudulent
claims for payment, in violation of 31 U.S.C. § 3729(a) (2).
Verdict Form, at 2. It found that the amount of damages the
Government sustained because of those false records or
statements was $7,500,000.
The Government concedes that the total amount of actual
damages for both counts is $7,500,000. U.S. Mot. 3 at 1. The
only party that disagrees is the Relator, who argues that the
jury intended to award $7.5 million in damages for each count,
for a total of $15 million. Relator Resp. at 2-3.
Relator's argument that the jury split the amount of
damages between the two counts is nothing more than speculation.
Relator ignores the important fact that the jury identified the
same 58 Supplier's Certificates for both Counts. At trial, the
Government argued that each of the 58 Supplier's Certificates
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constituted a false claim and/or a false statement. Pls.'
Closing Arg., Trial Tr. Nov. 21, 2013, A.M. Session at 62:12-13
("MWI's certifications on the 58 Supplier's Certificates that it
submitted to Ex-Im were false."). Thus, it is clear that the
jury determined that the same conduct, the submission of the 58
Supplier's Certificates, was a violation of both Count I and
Count II. To aggregate the two sums would be to punish MWI twice
for the same conduct, which would "amount to a double recovery."
See Kakeh v. United Planning Org., Inc., 655 F. Supp. 2d 107,
122 (D.D.C. 2009) ("It is well-settled that a plaintiff is not
permitted to recover multiple awards for the same injury.")
(citing supporting cases) .
The jury found that the 58 false certifications damaged the
Government by $7,500, 000 and therefore that is the amount of
actual damages.
D. Treble Damages
An entity found liable for a violation of the FCA is liable
for "3 times the amount of damages which the Government sustains
because of the act of that person." 31 U.S. C. § 3 72 9 (a) . The
parties agree that the first step in calculating treble damages
is to treble the actual damages amount. See Bornstein, 423 U.S.
at 316. Thus, the treble damages amount is $7,500,000 x 3
$22,500,000.
-8-
E. Offset for Compensatory Payments Under Bornstein
The real and difficult issue in the calculation of
total damages is whether, under Bornstein, MWI is entitled to an
offset of the $108 million dollars that the Ex-Im eventually
received from the federal Nigerian government as repayment of
the loans at issue.
1. United States v. Bornstein
Bornstein involved a Government contract for radio kits
with a prime contractor, Model Engineering. 423 U.S. at 307. A
subcontractor, United, knowingly sold Model Engineering electron
tubes for inclusion in the radio kits that did not conform to
the specifications of the Government contract. After the
Government discovered the nonconforming electron tubes, Model
Engineering paid the Government the difference in value between
the radio kits as specified in the contract and the radio kits
as supplied with the nonconforming electron tubes. Id.Subsequently, the Government sued United under the FCA and
prevailed. Id. at 308. A key issue before the Supreme Court was
whether the amount of damages owed by United to the Government
should be offset by the amount of Model Engineering's payments
to the Government, or whether the amount of damages should be
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doubled 4 before any subtractions should be made for Model
Engineering's payments. Id. at 314. Significantly, the
Government did not argue that Model Engineering's payments
should not be deducted at all -- the question was when to deduct
the payments. See id. at 314 n. 9 (noting that Government had
"abandoned" the position that "any compensatory payments it
received should not be deducted from its statutory damages at
all").
After evaluating the "language and purpose" of the FCA, the
Supreme Court concluded that, "in computing the double damages
authorized by the Act, the Government's actual damages are to be
doubled before any subtractions are made for compensatory
payments previously received by the Government from any source."
Id. at .316-17.
2. Issue Presented
It is undisputed that Nigeria eventually paid approximately
$108 million to the Ex-Im on the loans at issue the $74.3
million dollar principal and $33.7 million dollars in interest
and fees. MWI argues that, under Bornstein, the $108 million
that Nigeria paid the Government should be considered
4
The FCA was amended in 1986 and now provides for treble, not
double, damages. See Cook Cty., Ill. v. United States ex rel.
Chandler, 538 U.S. 119, 129-30 (2003) (discussing Congressional
modernization of FCA in 1986, including raising the ceiling on
damages from double to treble) .
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"compensatory payments previously received by the Government
from any source" and subtracted from the amount of treble
damages MWI owes the Government. Because the $108 million far
exceeds the $22.5 million MWI owes the government as treble
damages, MWI insists that, after applying the offset, it owes
nothing to the Government in damages.
MWI also argues that an offset for these payments is
mandatory under Bornstein and that the Court has no discretion
about whether or not to apply it in this case. MWI Mem. at 2-4.
That is incorrect. Bornstein did not define what constituted a
"compensatory payment," nor did it address the argument raised
by the Government in this case that certain compensatory
payments need not be deducted from statutory damages. 423 U.S.
at 314 n.9. Moreover, the Bornstein Court did not address a
situation where the compensatory payments to be subtracted are
larger than the single damages amount, much less, as in this
case, entirely dwarf the treble damages amount.
Thus, there are several questions raised in this case that
were neither raised nor addressed in Bornstein. MWI' s argument
that Bornstein resolves this issue without further analysis
ignores the complexity of the issue.
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3. MWI's Alleged "Influence" of Nigeria's Repayment
The Government's first argument is that the Nigerian loan
repayments were not "compensatory payments" because they were
only made after MWI lobbied Nigeria to repay its loans at the
expense of other loans due the Ex-Im. U.S. Mot. at 3-5. For the
reasons set out below, the Court concludes that the Government
failed to prove that MWI did in fact lobby the Nigerian
government to repay the MWI loans after learning that its
conduct was being investigated. Nor has the Government provided
any evidence that Nigeria would have paid off other loans to the
Ex-Im if it had not paid off the MWI loans.
The primary evidence the Government identifies in support
of its argument is the deposition testimony of Steve Ahaneku, a
Nigerian attorney. Ahaneku did not testify at trial, nor did the
Government call him as a witness at the damages hearing.
Instead, the Government relies on Ahaneku's deposition testimony
that "someone at [MWI] talked to [him] about talking to the
Nigerian officials specifically about repaying the EXIM loans
that related to the Eight-State Projects." U.S. Mot. Ex. 2 at 3. 5
Based on this deposition testimony, the Government argues
that after MWI "became aware of a criminal investigation into
5
Though the parties did not raise the issue, this testimony
would likely have been inadmissible at trial as hearsay. Fed. R.
Evid. 802.
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their conduct," MWI paid Ahaneku "to convince Nigerian officials
to pay off the MWI loan while other Exim loans were in default."
U.S. Mot. at 3. The testimony clearly does not support this
allegation.
The Government's assertion that Ahaneku was having these
conversations "right around the time" that MWI discovered the
investigation is incorrect. Ahaneku identified the time period
when he was asked to speak to Nigerian officials about repaying
the loans as between 1995, 1996, and 1997. Id. at 2. Although
the parties dispute when MWI became aware of the investigation
into its conduct, the Government does not suggest that MWI was
aware of any investigation prior to December 1998. U.S. Resp. 7
n.3. That date is well after the period that Ahaneku was
discussing in his deposition. Thus, Ahaneku' s testimony about
speaking to Nigerian officials in the mid-1990s does not support
the Government's assertion about what MWI did after it became
aware of the investigation in the late 1990s.
Second, Ahaneku's testimony does not support the
Plaintiffs' argument that MWI lobbied Nigerian officials to pay
off the MWI loans because MWI feared future liability. Instead,
Ahaneku testified that MWI sought to discuss the loans with
Nigerian officials because "officials come and go." Id. Ex. 2 at
2. Ahaneku noted that MWI was interested in assuring that the
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loans were repaid because "it is an obligation, it's an
outstanding obligation. The name is associated with it so they
would like it to be tidied up." Id. at 3. The Government did not
cite to any other portions of Ahaneku's deposition that impeach
the credibility of this witness or his testimony, nor did it
cite to any other testimony or evidence that contradicts the
testimony. 6
Consequently, the Government has failed to persuade the
Court that Ahaneku' s testimony stands for anything other than
the fact that, before MWI knew about any investigation into its
conduct, its agent spoke to Nigerian officials in an attempt to
ensure that loans that involved MWI were repaid.
Other evidence marshaled by the Government also fails to
supports its allegations. The Government notes the deposition
testimony of James Hess, Ex- Im' s Chief Financial Officer, who
stated that Nigeria "singled out" the MWI loans for repayment.
U.S. Mot. at 4, Ex. 3 at 1. However, Hess also testified that
there was "nothing improper" about Nigeria choosing to make
those payments, and that the Ex-Im would "rather have that money
than not have it." Id. at 2.
The Government emphasizes that after MWI knew about this
lawsuit, in 2002, it retained an American lawyer, Warren Glick,
6
Naturally, there was an opportunity for cross-examination at
the deposition.
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to determine Nigeria's indebtedness on the MWI loans. U.S. Mot.
at 4. The Government argues that MWI paid Glick to request
information about the loans from the Ex-Im under the Freedom of
Information Act ( "FOIA") , and insinuates that MWI took that
information and used it to influence Nigeria to repay the
remaining balance. Id. at 4-5. Again, the evidence does not
support the Government's chain of inferences.
The record shows that the vast majority of the loans were
repaid well in advance of Glick's FOIA request. 7 Indeed, Ex-Im's
response to Glick's FOIA request states that the remaining
balance on the loans was approximately $270,000. U.S. Mot. Ex. 5
at 2. That constitutes less than 1% of the entire amount of the
loans in question. In addition, the Government has presented no
evidence that anyone from MWI interacted-with Nigerian officials
about the MWI loans after the FOIA request was made. Thus, the
evidence cited by the Government simply does not support its
allegations.
In addition, the Court notes that, even if the Government
had identified evidence that MWI petitioned Nigeria to pay off
7
Approximately 42% of the loans were repaid by December 1998,
the earliest date the Government suggests MWI could have known
about an investigation into its conduct. See Def. Exs. 321, 331,
364, 370, 382, 397, 416, 424. The loans were almost entirely
paid off by May 3, 2001, over seven months before MWI received a
copy of the Relator's Complaint and sent its FOIA request to the
Ex-Im. See id.; see also U.S. Mot. Ex. 5 at 2 (Glick's FOIA
request, dated January 16, 2002).
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the MWI loans, such actions would not have been inappropriate.
The Government cites no law, regulation, or case precluding MWI
from lobbying Nigeria to take particular actions within
Nigeria 1 s discretion. 8 See MWI Mem. at Ex. 3 at 6 (Hess testimony
that there was nothing "inappropriate or impropertt about Nigeria
choosing to repay the MWI loans) . The Government fails to
acknowledge the indisputable fact that Nigeria has the right to
pay off its debts in whatever order it chooses.
The Government tries to avoid this fact by inferring that,
had MWI not petitioned the Nigerian government to pay off the
MWI loans,· Nigeria would have applied those funds to other Ex-Im
loans. Again, it provides no evidence to support that
proposition. Thus, the Government 1 S argument is pure
speculation.
Since the Government has failed to provide a factual basis
for its allegation that Nigeria repaid the loans in question at
MWI, s behest, or that Nigeria did so at the expense of other
loans to the Ex-Im, the Court rejects the Government,s argument
that Nigeria 1 s repayments were not "compensatory payments. 11
8
Moreover, the evidence at trial showed that the Ex-Im actually
required MWI to lobby Nigeria to repay other loans it owed to
the Government as a prerequisite to granting the loans in this
case. Test. of William Bucknam, Trial Tr. Nov. 8, 2013 P.M.
Session at 51:7-53:2 (testifying that Ex-Im officials required
MWI to collect unrelated arrearages from Nigeria in order to
make credits operative) .
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4. "Compensatory Payments"
The next issue that must be addressed is whether the
Nigerian loan repayments are "compensatory payments'' under
Bornstein. 9 Neither the parties nor the Court have identified any
factually-comparable case under the False Claims Act that
provides helpful guidance on this issue. In the absence of
specific guidance, the Court looks to Bornstein and its progeny.
As noted above, the Government did not argue in Bornstein
that prime contractor Model Engineering's settlement payments to
the Government were not compensatory payments, nor did the
Government argue that compensatory payments should not offset
9
MWI claims that the Government is judicially estopped from
•
arguing that the Nigerian repayments are not "compensatory." MWI
Resp. at 2-3. A court may invoke judicial estoppel "where a
party assumes a certain position in a legal proceeding, succeeds
in maintaining that position, and then, simply because his
interests have changed, assumes a contrary position." Moses v.
Howard Uni v. Hosp., 606 F. 3d 789, 798 (D.C. Cir. 2010) (internal
quotation marks and citations omitted) . MWI points out that the
Government argued before trial that evidence of Nigerian
repayment should not be presented to the jury specifically
because the repayments were compensatory payments under
Bornstein. Id. (citing United States' Mot. Seeking
Reconsideration of the Court's Damages Rulings, at 4-5 [Dkt. No.
416] )
This Court did not adopt the Government's position that the
Nigerian repayments were "compensatory payments" that would
necessarily offset any damages. See Order on Mot. for
Reconsideration at 8 [Dkt. No. 425] (noting that if the jury
determined the Government suffered damages, "the Court will then
decide" whether MWI is entitled to a reduction based on
Nigeria's repayments) (emphasis added) . Thus, the Government did
not "succeed" in maintaining its position, and judicial estoppel
is inapplicable.
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the FCA liability of the subcontractor. The only question was
when the payments should be used to offset liability -- before
or after calculation of treble damages. See 423 U.S. at 314 n.9
(noting that Government "abandoned" the position that "any
compensatory payments it received should not be deducted from
its statutory damages at all").
The Supreme Court posited that the Government may have
abandoned this position "for the reason that since United is
liable to Model for Model's payment to the United States, United
would in effect be assessed triple damages under such a rule."
Id. ThGs, the Court recognized the basic principle that, in a
case involving joint tortfeasors, the liability to the
Government is a shared liability that must be apportioned
accordingly. See United States ex rel. Bunk v. Birkart
Globistics, Nos. 1:02-cv-1168, 1:07-cv-1198, 2011 WL 5005313, at
*16 (E.D. Va. Oct. 19, 2012) ("It is generally agreed that when
a plaintiff settles with one of several joint tortfeasors, the
non-settling defendants are entitled to a credit for that
settlement.") (citation omitted); United States ex rel. Miller
v. Bill Harbert Int'l Constr., Inc., 501 F. Supp. 2d 51, 54-55
(D.D.C. 2007) (noting that "where there is a settlement between
the plaintiff and one defendant, the liability of the remaining
non-settling defendants must be calculated with reference to the
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jury's allocation of the non-settling defendant's
responsibility") (internal quotation marks and citation
omitted).
That reasoning could be used to distinguish this case,
because no evidence was presented nor argument made that Nigeria
should be jointly or severally liable for MWI' s false claims.
See United States v. Hawley, 562 F. Supp. 2d 1017, 1025 (N.D.
Iowa 2008) (noting that Bornstein does not stand for "the broad
proposition that a defendant in a FCA case is entitled to a
credit for any amounts recovered by the United States from
anothe~ party," but instead "stands for the quite different
proposition that a tortfeasor, such as a subcontractor, is
entitled to a credit for compensation that the United States has
recovered from another tortfeasor, such as a prime contractor").
However, the majority of post-Bornstein cases have not made this
distinction.
Rather, the cases have applied the Supreme Court's
statement in Bornstein that the offset encompasses "compensatory
payments previously received from any source" literally. 423
U.S. at 316 (emphasis added) In particular, this issue has
arisen in cases where individuals were found liable for
fraudulently procuring federal loans, but the beneficiaries of
those loans made payments on the underlying loans to the
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Government. See United States v. Heck, No. 08-0875, 1987 WL
49253, at *6 (D.N.J. Mar. 26, 1987) (holding that defendant was
entitled to offset including "amounts recovered from other
parties"); United States v. Ekelman & Ass'n, Inc., 531 F.2d 545,
547 (6th Cir. 1976) (decided immediately after Bornstein and
holding that offset should include "any amount recovered from
the veteran-mortgagor by the government") ; United States v.
Globe Remodeling Co., 196 F. Supp. 652 (D. Vt. 1960) (finding,
pre-Bornstein, that offset for "repayments to the government
from the borrowers who defaulted" should be made "after doubling
the original losses").
Evaluating this line of cases, the District Court for the
District of Puerto Rico observed:
Nothing in these cases holds or suggests that
Bornstein's recoupment rule turns on the nature or
sdurce of the particular recoupment. Indeed, Bornstein
itself forecloses such an interpretation. Bornstein
twice emphasized that its holding applies to
subsequent payments received from the government "from
any source."
United States v. Irizarry-Colon, No. 05-1607, 2006 WL 6911517,
at *11. (D.P.R. June 9, 2006) (quoting Bornstein, 423 U.S. at
316)
The Government has brought no case to the attention of this
Court that holds that third-party payments on a loan that
underlies FCA liability should not be considered "compensatory
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payments." In the absence of any contrary precedent, this Court
finds that Nigeria's repayments are "compensatory payments
previously received from any source," and should thus offset
MWI's liability.
5. Limitation on the Amount of Offset to "Original
Loss"
The Government argues that, even if Nigeria's loan
repayments are "compensatory payments" and should offset the
amount MWI owes in damages, the Court should limit the amount of
the offset to the "original loss" of $7.5 million dollars.
To justify its reasoning, the Government argues that the
Court must segregate Nigeria's repayment into the "legitimate"
amount repaid and the amount it repaid on "the fraudulent
portion of the loan." U.S. Resp. at 2-3. It insists that to do
otherwise would allow "doublecounting," because there are two
separate obligations -- Nigeria's original obligation to repay
the loans and MWI's new obligation to pay damages. Id.The Government has identified no precedent from either the
Supreme Court or our Court of Appeals that has applied such an
analysis. Its argument rests on two cases in which district
courts evaluated how to calculate a Bornstein offset when a
Defendant had pleaded guilty and paid an amount in criminal
restitution prior to a civil FCA suit. U.S. Resp. at 5-6
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(discussing United States ex rel. Schaefer v. ContiMed Concepts 1
No. 04-400 1 2010 WL 1485660 (W.D. Ky. Apr. 12 1 2010) ("Schaefer
II 11
) and United States v. Eghbal 1 475 F. Supp. 2d 1008 (C.D.
Cal. 2007)) These cases are factually distinguishable and do
not provide sufficient support for the Government s position. 1
Eghbal pleaded guilty to criminal charges of conspiring to
defraud the United States by fraudulently assisting purchasers
to obtain mortgages insured by the Department of Housing and
Urban Development in connection with the sale of 62 properties.
Eghbal, 475 F. Supp. 2d at 1011. He paid $1,346,220 in criminal
restitution based on those 62 properties. Amended Judgment and
Commitment Order/ United States v. Eghbal 1 No. 03-cr-465 (C.D.
Cal. Jan. 27 1 2004).
The Government then brought an FCA suit against Eghbal
based on 27 of the 62 properties. 475 F. Supp. 2d at 1011. The
Government sought damages of $2.8 million, trebled to $8.4
million/ less $2.1 million it recovered on re-sale and "Eghbal's
restitution payments of $499,387. 11
Id.The Government argues that this case demonstrates that a
district court has discretion to apply only a portion of a
compensatory payment as an offset. The Court disagrees. The
parties in Eghbal did not dispute that the portion of the $1.3
million restitution payment that related to the 27 loans at
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issue in the civil suit was $499,387. Id. This comports with the
facts underlying the Government's civil suit the FCA suit
only related to 27 of the 67 loans at issue in Eghbal's criminal
proceeding. Thus, the district court was not choosing to apply a
portion of Eghbal's compensatory payments -- the court was only
applying the portion of Eghbal's restitution that was, in fact,
compensatory, based on the scope of the FCA case.
Schaefer is similar. Defendant Conti pleaded guilty to one
count of altering a prescription in 2007. See United States ex
rel. Schaefer v. ContiMed Concepts, No. 04-400, 2009 WL 5104149,
at *2 (W.D. Ky. Dec. 17, 2009) ("Schaefer I"). Conti then paid
almost $80,000 in criminal restitution to the Center for
Medicare Services and the State of Kentucky for various schemes
and conspiracies to alter and falsify medical records, including
the altered prescription underlying his criminal liability.
Judgment and Commitment Order, United States v. Conti, No. 06-
cr-152 (W.D. Ky. March 24, 2008); Order, United States v. Conti,
No. 06-cr-152 (W.D. Ky. July 27, 2009).
The Government brought a civil FCA suit, and the District
Court found that, based on the guilty plea, Conti was estopped
from denying the elements of one claim of falsifying a
prescription under 31 U.S.C. § 3729(a) (2). Schaefer I, 2009 WL
5104149, at *6. The court later found that the "actual damages
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from that single count [were] $404.24. 11
Schaefer II, 2010 WL
1485660, at *3. It trebled that amount, and found that Conti was
liable for $1212.72, in addition to a civil penalty of $5,500,
for a total of $6,712.72. Id.Conti argued that the approximately $80,000 he had paid in
criminal restitution should offset his entire civil judgment.
Id. The Government argued that "only the compensatory portion of
the judgment should be offset, 11
id., and the Court agreed,
subtracting only "the compensatory component, $404.24, 11
from the
civil judgment. Id. at *4.
Thus, the Schaefer and Eghbal courts found that only the
portion of the criminal restitution payment related to the
factual conduct underlying the false claim at issue in the
subsequent FCA case should be offset under Bornstein. Because
the excess amounts paid in criminal restitution were paid for
unrelated conduct, the Court refused to apply those amounts as
an offset.
Here, the Government argued, and the jury found, that
Defendant was liable for its certifications on all 58 Supplier's
Certificates related to the eight Nigerian loans. The Nigerian
repayments were related to those same eight Nigerian loans.
Thus, Schaefer and Eghbal do not provide guidance in a situation
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such as this one, where the entire amount paid by Nigeria is
unquestionably related to the underlying false claims.
The Government makes a public policy argument that allowing
Nigeria's repayments to offset the entirety of MWI liability
will "severely undermine Congress's intent to hold defendants
accountable for defrauding the United States and deter others
from engaging in similar misconduct." U.S. Resp. at 6 (citation
omitted). However, neither the language of the statute nor any
prior case provides support fdr this Court to divide Nigeria's
repayments into compensatory and non-compensatory payments in
light of the fact that the jury found liability for all of the
loans in their entirety. Thus, in accord with the cases cited,
this Court will subtract the full amount of the compensatory
payments made by Nigeria from the trebled damage amount, as
instructed in Bornstein. 423 U.S. at 316 (holding that "actual
damages are to be doubled before any subtractions are made for
compensatory payments previously received by the Government from
any source") (emphasis added) .
This result accords with the Supreme Court's declaration in
Bornstein that "the device of [treble] damages plus a specific
sum was chosen to make sure that the government would be made
completely whole." Id. at 314. Despite the fraudulent actions
taken by MWI to persuade the Government to make these loans,
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•·
they were in fact paid back in full with interest and fees.
Indeed, the Government received a total o"f approximately $108
million on these loans from Nigeria -- $33.7 million more than
the largest amount it pursued in damages, $74.3 million. That
$33.7 million alone exceeds the $22.5 million in treble damages
owed by MWI. Thus, the Government has been "made completely
whole" because of Nigeria's repayments, and, thus, granting MWI
an offset for those payments does not conflict with Bornstein.
The Court also notes that this outcome is in accord with
United States ex rel. Davis v. Dist. of Columbia, 679 F.3d 832(D.C. Cir. 2012). Davis sued the District of Columbia for
submitting a Medicaid reimbursement claim without adequate
supporting documentation. Id. at 834. Davis did not allege,
however, that any medical services that the Government paid for
were not provided. Id. at 840. Thus, because the only defect was
documentary, the Court of Appeals upheld the district court's
conclusion that "[t]he Government got what it paid for and there
are no damages." Id. Although the factual and procedural posture
of that case is very different, Davis still stands for the
proposition that there are cases where fraud on the Government
has occurred but, because the Government has gotten what it paid
for, the Government's recovery is limited to civil penalties.
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In short, the Court concludes that, in the absence of any
contradictory precedent, the Court will apply the $108 million
dollars repaid by Nigeria against the $22.5 million trebled
damage amount. Thus, MWI owes nothing in damages. 10
F. Civil Penalties
The Court now turns to the appropriate amount of statutory
civil penalties which should be imposed. 11 The FCA establishes a
statutory penalty of $5,000 to $10,000 for each false claim or
false statement. 31 U.S.C. § 3729(a) (establishes that liable
entity must pay "civil penalty of not less than $5,000 and not
more than $10,000"). The jury identified 58 false claims. 12
10
If Congress agrees with the Government that this result is
undesirable, it could change either the wording of the treble
damage provision or increase the civil penalties, as it has done
in the past. See, e.g., False Claims Amendments Act of 1986,
Pub. L .. 99-562, § 2 (7), 100 Stat. 3153 (raising the civil fines
and changing the multiplier for damages from double to treble).
11
MWI did not argue that it was entitled to any offset against
the amount it owes in statutory civil penalties.
12
MWI initially agreed with Plaintiffs that the jury's
determination that MWI made 58 false claims provided the
appropriate number of penal ties. However, in its Response, MWI
argued for the first time that the Complaint did not identify
the eight Letter of Credit Supplier's Certificates and only
identified 48 Disbursement Supplier's Certificates, and now
argues that 48 was the appropriate number of false claims for
the Court to use in setting civil penalties. MWI Resp. at 10.
As noted above, see supra note 1, MWI did not challenge the
Government's testimony or evidence at trial identifying 58 total
Supplier's Certificates issued on the underlying loans at issue
in this case. The jury found each of those documents to be a
false claim and/ or false statement. Thus, MWI' s belated
challenge to the jury's finding will be denied, and the Court
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The parties agree that the appropriate range for the
statutory penalties is $5,000 to $10,000. 13 The determination of
the appropriate statutory civil penalty is firmly within the
discretion of the district court. Bill Harbert, 501 F. Supp. 2d
at 56 (citing Cook County, 538 U.S. at 132) . The parties also
agree that the Court should consider the "totality of the
circumstances" in determining the appropriate amount of
penalties. U.S. Mot. at 7; MWI Mem. at 16. As the district court
observed in Bill Harbert:
Though there is no defined set of criteria by which to
assess the proper amount of civil penal ties against
the defendant, the Court finds that an approach
considering the totality of the circumstances,
including such factors as the seriousness of the
misconduct, the scienter of the defendants, and the
amount of damages suffered by the United States as a
result of the misconduct is the most appropriate.
will set civil penalties based on the 58 false claims identified
by the jury.
13
The Federal Civil Penalties Inflation Adjustment Act of 1990
("Adjustment Act"), Pub. L. No. 101-410, § 5, provides for
periodic increases to civil monetary penal ties. In 1996, the
Omnibus Consolidated Rescissions and Appropriations Act of 1996
was passed, and it included the Debt Collection Improvement Act
of 1996 ("Improvement Act"). Pub. L. No. 104-134, § 31001. The
Improvement Act amended the Adjustment Act to require the head
of each agency to regularly adjust civil penalties for
inflation. Id. § 13001(s) (1) (A). In 1999, the Department of
Justice complied by issuing regulations raising such penalties,
including False Claims Act penalties. 64 Fed. Reg. 47,099,
47,903-04 (Aug. 30, 1999). However, the regulations specified
that the increase was only "effective for violations occurring
on or after September 29, 1999." Id. 47,903. The parties agree
that the conduct at issue here took place before that date, and,
thus, MWI is not subject to the increased penalties.
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501 F. Supp. 2d at 56 (citation omitted). Under the totality of
the circumstances, including consideration of the enumerated
factors, the Court finds that the appropriate penalty is $10,000
per false claim for the following reasons.
First, the Court finds that the evidence regarding scienter
weighs in favor of a high penalty in this case. Specifically,
the Court finds that there was evidence that Mr. Eller,
President of MWI, had actual knowledge that the commissions
should have been disclosed. When repeatedly asked whether or not
Indimi's commissions were disclosed on the Supplier's
Certificates, Eller refused to answer directly. Instead, he kept
repeating that MWI "would have never done anything wrong." Test.
of David Eller, Trial Tr. Nov. 8, 2013, A.M. Session at 106:6-
108:17; 111:10-112-1 (the Court asking Eller the question). He
insisted he was "just an engineer," id. at 109:21, and claimed
that he signed the Supplier's Certificates on the advice of his
attorney, William Bucknam, or his Chief Financial Officer,
Thomas Roegiers. Id. at 107:6-13; 109:10-21; 111:2-3; 113:12-14.
However, MWI employees testified that Eller personally
approved every commission MWI paid, including Indimi's
commissions. Test. of Thomas Roegiers, Trial Tr. Nov. 19, 2013,
A.M. Session at 20:9-23; Test. of Juan Ponce, Trial Tr. Nov. 13,
2013, A.M Session at 9:22-10:8, 14:14-21. Moreover, Eller
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testified that MWI never paid any other agent on any other
combined project a total commission of more than $5 million, far
less than some of the commissions Indimi was paid for single
projects. Id. at 120:11-22. Thus, despite his protests that MWI
would never engage in wrongdoing, Eller signed several
Supplier's Certificates declaring that no irregular commissions
had been paid even though he knew that Indimi's commissions were
significantly higher than average commission rates, even within
MWI.
Second, the evidence of actual knowledge suggests
deliberate misconduct, which goes to the seriousness of the
offense. Juan Ponce, MWI's Vice President of International Sales
and a credible witness, testified, "we knew that we were
violating . the rules. We just hoped that we would never get
caught." Test. of Juan Ponce, Trial Tr. Nov. 13, 2013, A.M.
Session at 35:3-4. This evidence that MWI deliberately withheld
information about Indimi' s commissions from Ex-Im in order to
acquire financing supports a finding that "the conduct was
deliberate and serious enough to weigh in favor of applying the
maximum civil penalty." Bill Harbert, 501 F. Supp. 2d at 56.
Third, the Court considers the "amount of damages suffered"
by the Government. The harm to the Government was more than
monetary -- it went to the integrity and purposes of the Ex-Im's
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programmatic goals. See Test. of Rita Rodriguez, Nov. 14, 2013,
A.M. Session at 20:1-7 (discussing Ex-Im's goals to support U.S.
jobs and to avoid any involvement with bribery) . Given that
approximately a third of the total loan amount went to a single
Nigerian individual, the goal of the Ex-Im to finance loans that
primarily benefit U.S. exporters and workers was not achieved.
Test. of David Chavern, Trial Tr. Nov. 12, 2013, A.M. Session at
70:16-21 (noting that "purpose of the bank's financing is not
primarily to finance commissions; it's to finance the
export of goods and services"); see also Ab-Tech Const., Inc. v.
United States, 31 Fed. Cl. 429, 434-35 (Fed Cl. 1994) (noting
that penal ties are intended to "compensate the Government for
the costs of corruption," which include the "societal cost"
associated with abuse of a federal program) (internal quotation
marks and citation omitted) .
The Court also notes that the Government expended a massive
amount of resources to pursue this case over the years. In the
damages hearing, Government counsel represented that over 11,000
hours had been spent on the case. This consideration is relevant
to determining the appropriate civil penalty. See Morse Diesel
Int'l, Inc. v. United States, 79 Fed. Cl. 116, 125-26 (Fed. Cl.
2007) (considering that Government had "spent 13 years
investigating and prosecuting this case to date" in deciding
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maximum civil penalties were warranted); United States v.
Peters, 927 F. Supp. 363, 368-69 (D. Neb. 1996) (considering
"the costs of detection, investigation and prosecution" as part
of appropriate civil penalties); Ab-Tech, 31 Fed Cl. at 435
(determining that maximum civil penalty was "fully justified in
light of the extensive diversion of resources" that uncovering
defendant's fraud necessitated).
Considering the totality of the circumstances, the Court
concludes that a civil penalty of $10,000 per false claim
provides appropriate deterrence, reflects the seriousness of the
misconduct and evidence of actual knowledge, and helps
compensate the Government for the incredible amount of resources
invested in identifying and litigating this lengthy case to
successful conclusion.
G. Conclusion
The jury found that MWI violated the False Claims Act by
making 58 false claims and that the Government suffered $7.5
million dollars in damages. Even after the damages are trebled,
the amount that Nigeria repaid compensated the Government for
its loss. MWI is responsible, however, for $580,000 in civil
penalties.
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An Order directing the Clerk to enter judgment accordingly
shall accompany this Memorandum Opinion.
February 10, 2014 ``~·
Gla ys Kess er
United States District Judge
Copies to: attorneys on record via ECF
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