THE CASE FOR AMENDING THE FALSE CLAIMS ACT
MWI and the FCA: 1998-2017
MWI Corporation’s experience with the False Claims Act began on August 18, 1998 when a former employee filed a qui tam complaint under seal in Washington, D. C. After reviewing some of the wild and ultimately unprovable allegations in the complaint, Attorney General Janet Reno ordered a criminal investigation. MWI did not become aware of this investigation until April 22, 1999 when two FBI Special Agents appeared at the homes of two employees to serve Grand Jury subpoenas.
The U.S. Department of Justice later abandoned the criminal investigation in early 2002 without bringing any indictments. As a former Assistant United States Attorney I can tell you it is a rare if not unprecedented event for DOJ to conduct a 30 month long criminal investigation and to fail to indict anyone.
In March 2002 DOJ announced that they were going to intervene in the qui tam complaint of our former employee and this was the first time we learned of it existence. The complaint related to $74.3 million in loans from the Export-Import Bank of the United States that MWI used for its business with seven states in Nigeria. DOJ was aware at the time they intervened that the Government of Nigeria had repaid these loans in full and that the U.S. Government had actually made a profit of $33.7 million on the transactions.
Although it was initially unclear, MWI was absolutely stunned to learn that DOJ was seeking damages equal to three times the amount of the loans or $222.9 million plus civil penalties of $580,000. A judgment of that magnitude would have meant instantaneous bankruptcy for what was then a 76 year old family-owned pump manufacturer.
Every one of the 58 times MWI made a shipment to Nigeria under these Exim Bank credits, it was required to file a Supplier’s Certificate with the Bank certifying that it had paid “Regular commissions or fees paid or to be paid to our regular sales agent…and readily identifiable on our books and records as to amount, purpose and recipient”. The dispute with DOJ centered around MWI’s reasonable interpretation of the undefined term “regular commission” which was then and remains today undefined.
Former Exim Bank General Counsel, Warren Glick, testified on MWI’s behalf at trial and he stated that he created the Supplier’s Certificate in this manner because the Bank did not wish to get involved in commissions exporters paid to their agents. Mr. Glick further testified that he agreed with MWI’s interpretation of their legal obligations when they filed each Supplier’s Certificate.
Thinking that I might have missed an Exim Bank policy on allowable commissions to be paid by an exporter to their sales agent, I went on the Bank’s web site and did a search for “Policy on commissions”. As I suspected, I found nothing that related to allowable commissions to sales agents but I made a somewhat surprising discovery of Exim Bank’s policy regarding their payment of a commission of up to 40% to their Export Credit Insurance Agents. I was asked about my discovery during my deposition and the very next day the search function on the Exim web site had been disabled. In the summer of 2013 DOJ panicked in an effort to keep the jury from learning about Exim’s embarrassing 40% commission and filed a Motion In Limine to bar MWI from introducing that into evidence. U.S. District Judge Gladys Kessler granted DOJ’s motion with the proviso that MWI could introduce this fact into evidence if they were to open the door.
At trial in November 2013 former Exim Bank Director Dr. Rita Rodriguez testified that in her 40 years of working in international finance she had “never seen a commission as high as MWI’s.” After she “opened the door” she was then questioned about Exim Bank’s spurious 40% commission which the jury was finally able to learn about.
The Mediation exercise MWI participated in on October 22, 2013 ended up being an exercise in futility. Even though DOJ had possession of its financial statements, they continually made unreasonable demands to resolve the case. DOJ refused to understand that paying the exorbitant amount of money they demanded over a period of years would make MWI radioactive for any bank considering it for a line of credit and MWI had already lost its line of credit because of the prospect of a $222.9 million judgment. MWI finally terminated the Mediation and announced that it would go to trial.
The night before the commencement of trial in November 2013, Judge Kessler reversed an earlier ruling and decided to bar MWI from introducing evidence that the Government of Nigeria had repaid the $74.3 million loans in full and that the U.S Government had made a profit of $33.7 million. The jury later returned a verdict for the Government for $7.5 million which was trebled to $22.5 million. In a post-trial hearing, Judge Kessler reduced the damages to zero based on the fact that the Government of Nigeria had repaid the $74.3 million loans in full and the U.S Government had made a profit of $33.7 million on the transactions. She did, however, impose the maximum civil penalties of $580,000.
DOJ foolishly appealed the offset of the damages to zero and MWI cross-appealed the verdict of liability and the imposition of the civil penalties.
The National Association of Manufacturers filed an Amicus brief in the D.C. Circuit on MWI’s behalf and on November 24, 2015 that Court issued a strong and unanimous opinion in MWI’s behalf reversing the judgment of liability and instructing the District Judge to enter judgment for MWI. The Court even cited Dr. Rodriguez’s testimony and the evidence of Exim’s 40% commission. The D.C. Circuit subsequently denied DOJ’s petitions for rehearing and rehearing en banc. In September 2016 the U.S Solicitor General declined to file a Petition for Certiorari although the relator did so. On January 9, 2017 the U.S. Supreme Court declined to grant relator’s petition and that spelled the final end of the historic case after 18 years and 136 days.
In the end, MWI was completely vindicated and totally exonerated.
Defendants rarely win FCA cases where DOJ intervenes due to the treble damages club that DOJ swings to bludgeon settlements out of defendants. The MWI case was one of the very rare cases that actually ended up going to trial.
The False Claims Act should be amended to enable defendants who prevail in such cases to be reimbursed for every dollar they spend in their successful defense. Such an amendment will do nothing to enable MWI to recover the $12 million it spent defending itself but it would, hopefully, reign in an out of control DOJ and possibly prevent them from doing to another company what they did to MWI.
The proposed amendment to the False Claims Act is a matter of simple equity and $12 million would be an insignificant offset to the $4.7 billion that DOJ returned to the Treasury in 2016 through their enforcement of the FCA. Please contact your Senators and every member of your state’s Congressional delegation today to urge their support for this amendment to the False Claims Act.
William E. Bucknam, Esq. is the Vice President & General Counsel of MWI Corporation. Bucknam oversaw this case from 1998 through to its final successful conclusion in 2017.