In late September, the United States Court of Appeals for the Fifth Circuit concluded that the Government was not defrauded under the False Claims Act due to its knowledge of alterations to guardrails purchased by state governments with federal funds. Joshua Harman, a customer of Trinity Industries (Trinity), filed a False Claims Act (FCA) suit in the Eastern District of Texas against Trinity, alleging that Trinity failed to disclose fabricated changes to its ET-Plus guardrail system through a Federal Highway Administration (FHWA) policy requiring disclosure of any changes to government funded highway systems. Specifically, Harman claimed that Trinity failed to disclose:
• the change from a 5-inch rail feeder chute to a 4-inch rail chute;
• changes to the exit gap;
• changes to the feeder chute assembly;
• changes to the feeder chute assembly length; and
• other changes to the ET-Plus system.
These allegations arise from a report sent from Trinity to FHWA in 2005 that included the changes made to the 31-inch guardrail height, but did not include the changes of the guide channel width or other related changes.
The federal government funds the enhancement of state highways through the reimbursement of the installations of guardrail end terminal systems. However, these systems are required to meet standards and obtain acceptance from the FHWA before they become eligible for federal reimbursement. Testing of the products may be required, unless the system changes “are nearly certain to be safe” or “so similar to currently accepted features that there is little doubt that they would perform acceptably.”
In response to the accusations in Harman’s FCA suit, the FHWA released a memorandum on June 17, 2014 maintaining that the FHWA “validated that the ET-Plus with the 4-inch guide channels was crash tested in May 2005” and that “[t]he Trinity ET-Plus with the 4-inch guide channels became eligible for Federal reimbursement … on September 2, 2005.” Additionally, the Department of Justice responded to Harman’s Touhy request to produce potential witnesses by deferring to the FHWA June 2014 memorandum as the government’s position.
Following a six-day jury trial, a verdict was reached in favor of Harman. Subsequently, the FHWA started an independent testing of the products that were installed around the country. A collection of state, federal, and other transportation experts examined the ET-Plus installations and concluded that:
• there was not any evidence to suggest there were multiple versions of the ET-Plus of the highways and
• the units that were tested were “representative of the devices installed across the country.”
Following these results, the district court denied Trinity’s motion for judgment as a matter of law and entered judgment in favor of Harman and the United States for $663,360,750, as well as $19,012,865 in attorney’s fees. The Fifth Circuit, sitting in review of the district court’s denial of Trinity’s rule 50(b) motion, looked to the question of whether Trinity was entitled to judgment as a matter of law on the issue of materiality.
The False Claims Act prohibits anyone from defrauding the government through false statements or fraudulent activity. In reversing the lower court’s decision, the Fifth Circuit held:
• the policy only required disclosure of significant changes, subject to an engineer’s judgment;
• there was not any proof presented that showed Trinity acted with knowledge of the falsity of its statement; and
• the activity did not materially cause the government to pay out money that it would not have otherwise done.
The Fifth Circuit noted that the 2005 changes did not affect FHWA’s choice to keep purchasing the guardrails at issue in the present or future. In fact, the Fifth Circuit further stated that the relevant question was not what Trinity disclosed to FHWA, but rather FHWA’s findings in a June 2014 memorandum that effectively dismissed Harman’s concerns.
In this case, FHWA knew of Harman’s allegations, yet still approved the continued reimbursement of the ET-Plus guardrail units despite the claims. The appeals court found that the evidence at trial fell short of demonstrating that material false statements were made. This action demonstrates the importance of ensuring every element of the FCA is met, especially materiality in light of the Supreme Court’s Escobar decision that held materiality is an element that is “rigorous” and “demanding.”
Source: US ex rel. Harman v. Trinity Industries Inc., et al., No. 15-41172, 2017 WL 4325279, – F.3d – (5th Cir. 2017).
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