In March 2012, a Qui Tam (False Claims Act) petition was filed in the United States District Court for the Eastern District of Texas by Joshua Harman on behalf of the United States of America against Trinity Industries, Inc., relating to design modifications for a guardrail end terminal system that were allegedly not disclosed to the appropriate authorities before release into the market. Harman, in his petition, indicates that he is an original source of and has direct knowledge of all publicly disclosed information upon which the allegations are based, and voluntarily provided all information to the Government prior to filing his petition.
At issue in this case is the ET-Plus guardrail end terminal manufactured and sold by Trinity Industries, Inc. Guardrail end terminals are used to absorb and disperse the force of a vehicular impact. The controversy centers on a modified version of a Trinity end terminal that was approved by the Federal Government for use in January 2000.
According to the petition, the original device was not only very successful in an initial impact situation, but continued to perform if struck in a subsequent incident before maintenance crews were able to replace or repair the damaged end terminal.
In early 2005, a modified device appeared on the market. Trinity twice sought approval of other modifications to the system. Documented proof that the company officially disclosed the specific modifications at issue to appropriate entities cannot be found, a fact that appears to support the allegation that the company did not submit the modifications for approval before putting the modified system on the market. The modifications at issue are noted as problematic, because they allegedly cause the end terminal to malfunction in a way that may result in serious injury or death.
The case was tried to a jury which, according to the final judgment entered by the court in June, 2015:
… rendered a unanimous verdict …, finding that Defendants Trinity Industries, Inc. and Trinity Highway Products, LLC “knowingly made, used, or caused to be made or used, a false record or statement material to a false or fraudulent claim” in violation of the False Claims Act. The jury further rendered a unanimous verdict, finding that the U.S. government suffered damages in the amount of $175,000,000 as the result of Trinity’s violations of the FCA.
The Court ordered the damages awarded by the jury to be trebled to $525,000,000, pursuant to 31 U.S.C. § 3729. The defendants were also assessed a civil penalty of $8,250 for each of the 16,771 false certifications that were made to the U.S. Government in connection with false claims for payment, for total penalties of $138,360,750. All told, the final judgment against Trinity and in favor of Harman and the U.S. Government totaled $663,360,750 in damages and penalties. The Court also awarded Haman a commission of $199,008,225.00—thirty percent of the $663,360,750.00—as well as attorneys’ fees of $16,535,035.75, plus expenses and taxable costs.
Immediately after the trial, virtually every state that had been using the modified end terminal system removed it from their lists of qualified products.
IV. Issues Pending/on Appeal
After the Court denied its Motion for a New Trial, Trinity appealed the matter to the Fifth Circuit of the U.S. Court of Appeals on August 31, 2015.
Trinity claims that the judgment—the largest in the 150-year history of the False Claims Act—is an extreme abuse of the False Claims Act. Trinity contends that: because Trinity fully complied with all applicable FHWA regulations, it was not a case of regulatory compliance, let alone fraud; the FHWA rejected the allegations against Trinity and affirmed that the modified end terminal system was at all times eligible for federal reimbursement; and the U.S. Court of Appeals issued a mandamus order on the eve of trial that FHWA’s statements were likely fatal to Harman’s case.
Trinity raises several issues on appeal. Trinity argues that the district court ignored the official statements of the Federal Highway Administration, the U.S. Department of Justice, and the Fifth Circuit when it denied Defendants’ Rule 50(b) motion for judgment, and that Harman’s case fails under every element of the False Claims Act. Trinity also argues that the government suffered no damages as a matter of law, and the district court calculated the civil penalties award without submitting the number of false claims to the jury. Finally, Trinity contends that the district court was wrong to deny Defendants’ motion for new trial in a one-paragraph order that “decline[d] to address” any of the newly discovered evidence that gave rise to the motion.
Trinity’s appellate arguments rely on an ambiguity in the regulatory regime in effect in 2005. Trinity states that it did not knowingly make any false statements, and that the applicable regulations required disclosure of “significant” changes, not “any” changes. Trinity also argues that the condition of federal payment that creates False Claims Act liability does not apply in this context.
The case is currently calendared for oral argument in the Fifth Circuit the week of December 5, 2016.