Eastern District of Texas Awards Relator $218 Million Despite Fifth Circuit Caution That Claims Not Likely Material or Based on False Certifications

By on June 19, 2015

The Eastern District of Texas confirmed a jury verdict holding highway-guardrail manufacturer Trinity Industries liable for False Claims Act violations on June 9, 2015, resulting in a judgment of over $680 million against the company.  Out of the $663 million in damages and penalties, the court awarded the relator a 30 percent share of the recovery, citing the government’s decision not to intervene in the case, and awarded almost $19 million in attorneys’ fees and expenses.  All told, the relator was awarded over $218 million.  The case is likely to be appealed based on Trinity’s arguments that the claims were not legally false because of retroactive government approval of the guardrails in question.  The district court’s opinion is notable both due to the interesting appellate issues it presents, and the large recovery awarded to the relator.

The federal government, through the Federal Highway Administration (FHWA), reimburses state transportation departments for certain highway construction expenses.  In order to be eligible for reimbursement, guardrails must be crash-tested and accepted by the FHWA.  Defendant Trinity had obtained such acceptance for its ET-Plus units in 1999.  In 2005, Trinity then modified the design of the ET-Plus units.  The relator alleged, and the jury agreed, that Trinity did not disclose these modifications to the approved guardrails.  The relator, a small competitor of Trinity’s, alleged that the modifications made the guardrails unsafe.

Based on the failure to disclose the modifications, the jury found that Trinity falsely certified that the modified guardrails were FHWA crash-tested and approved.  In its post-trial motion for judgment as a matter of law, Trinity’s primary argument was that the reimbursement claims could not be false because the FHWA determined in 2014 that the modified guardrail was eligible for reimbursement. The FHWA’s June 2014 letter, issued shortly before trial, stated that the modified guardrail complied with safety standards and was therefore fully eligible in the past, present and future for federal reimbursement.  In other words, regardless of whether the changes to the units were disclosed in 2005 or thereafter, the FHWA determined retroactively that the modified guardrails met reimbursement standards.

The Eastern District of Texas, however, found that the FHWA’s June 2014 letter “merely recites Trinity’s representations” that the modified guardrail was crash-tested in 2005, and stated that “Plaintiff introduced substantial and often uncontroverted evidence that … Trinity failed to disclose any of those modifications to the FHWA at any time prior to 2012.”  The court discounted the FHWA letter because “the FHWA did not participate into any investigation into the modification of the ET-Plus or the veracity of Trinity’s claims that the ET-Plus was eligible for federal reimbursement until after the jury rendered its verdict.”  Thus, the court found that the FHWA letter was insufficient to contradict the evidence at trial that “Trinity withheld material information regarding the ET-Plus units, concealed substantial modifications to the standard ET-Plus unit that was tested and originally approved by the FHWA, and falsely certified that the ET-Plus units were compliant.”

In a press release, Trinity announced its intention to file post-judgment motions and potentially appeal the outcome.  The appeal will be an interesting one to watch given the FHWA’s 2014 letter supporting Trinity’s argument, and prior statements by the Fifth Circuit in denying requests for interlocutory review that it is a “close” case.  The Fifth Circuit stated shortly before the second trial that “a strong argument can be made that the defendant’s actions were neither material nor were any false claims based on false certifications presented to the government.”  The Fifth Circuit stated that the FHWA letter “seems to compel the conclusion” that FHWA found the product compliant with federal safety standards and therefore eligible for federal reimbursement claims. It’s therefore unlikely that the lower court’s recent decision is the end of this matter.  Any opinion by the Fifth Circuit will be instructive on the question of whether agency guidance issued after the presentment of an allegedly false claim prevents materiality or legal falsity of the claim, a question particularly relevant to industries such as health care, where regulatory guidance often changes in light of updated evidence or changes in industry practice.

Nevertheless, the lower court’s opinion is also noteworthy for the size of the award to the relator —the maximum possible share of the damages and penalties (30 percent).  The court also provided a generous attorneys’ fee award, awarding the relator all of the fees that he requested, despite Trinity’s argument that the fees were not reasonable. This is unusual because an award of attorneys’ fees is judged against the familiar “reasonable attorney fees” standard.  In commercial disputes, an award to a prevailing party based on the “reasonable attorney fees” standard often comes with a substantial discount of the incurred fees, particularly when the prevailing party’s counsel is a national law firm with hourly rates above those in the local legal community.  The district court nonetheless awarded the relator 100 percent of the requested fees, even though the average of the standard hourly rate for the lead attorneys was over $1,000 an hour, and where the court had previously applied a blended $300 hourly rate for fee awards to the parties related to discovery disputes in the case. We will continue to watch developments in this case.