http://www.nytimes.com/2009/04/11/world/middleeast/11custer.html?_r=1&

 

 

April 11, 2009

Contractor Must Pay in Iraq Fraud, Court Rules

By JAMES GLANZ

A federal appeals court ruled Friday that a contractor found to have committed widespread fraud in Iraq could not avoid paying millions of dollars in damages by claiming that the United States law governing false claims essentially did not apply there, as a previous judge had found on technical grounds.

The decision, by the United States Court of Appeals for the Fourth Circuit in Richmond, Va., reverses a decision that had put a chill on what are believed to be dozens of pending whistle-blower cases involving contractors in Iraq. The earlier decision set aside a jury’s verdict in 2006 that the contractor, Custer Battles, must pay about $10 million in damages and penalties to the United States government and two whistle-blowers.

 

The jury had found that under the False Claims Act, Custer Battles filed fake invoices and vastly inflated its costs, as two former employees of the company had charged. But the judge in the case, T. S. Ellis III of the Federal District Court in Alexandria, Va., ultimately made two rulings that would have freed the company from paying any damages.

 

First, even though the company eventually won security and logistics contracts in Iraq worth tens of millions of dollars, Judge Ellis ruled that in this case, only $3 million paid for with a Treasury check was subject to the False Claims Act. That ruling posed a severe limitation because in the months after the invasion, American officials used seized Iraqi cash and Iraqi oil revenues to pay many contractors.

Judge Ellis said that fraud committed with Iraqi money was not subject to the act. He made a second ruling after the jury had already found the company liable for triple damages and other fees regarding the work paid for with the Treasury check. The judge found that American contracting officials abroad, like those with the Coalition Provisional Authority in Iraq, could not strictly be regarded as agents of the United States government within the False Claims Act.

 

The latest judgment overturned those rulings, although the appeals court said that several other objections by the company would have to be considered by Judge Ellis before he decided whether the damages should be paid. The appeals court also gave the plaintiffs the option of a new trial.

The appeals court ruled in favor of Custer Battles in another decision by Judge Ellis relating specifically to a contract to provide security at Baghdad International Airport.

 

The appeals ruling, said Victor A. Kubli, a lawyer for the whistle-blowers, showed that the United States government’s operations abroad were not “free-fraud zones” for contractors.

 

Robert T. Rhoad, a lawyer for Custer Battles, said he was pleased with the decision on the airport contract. As for the rest of the judgment, he said, “We simply see this as the Fourth Circuit clarifying this rapidly developing area of law and as a welcome opportunity to present our strongest arguments” when the case goes back to the district court.

 

Home

Copyright 2009 The New York Times Company

 

Donations can be sent to the Baltimore Nonviolence Center, 325 E. 25th St., Baltimore, MD 21218.  Ph: 410-366-1637; Email: mobuszewski [at] verizon.net

 

"The master class has always declared the wars; the subject class has always fought the battles. The master class has had all to gain and nothing to lose, while the subject class has had nothing to gain and everything to lose--especially their lives." Eugene Victor Debs