March 18, 2015
It appears a settlement has been reached in the False Claims Act case brought by two whistleblowers and the United States against two shippers, Covan World-Wide Moving Inc. and Coleman American Moving Services Inc. (the Covan Carrier Group), in federal district court in South Carolina. In an Order issued yesterday, the federal district court judge put the case on hold pending finalization of a settlement in principle.
Covan Carrier Group had contracts with the U.S. Department of Defense (DOD) to assist in relocating military personnel by packing and shipping their belongings as they were deployed at home and abroad. The United States and the whistleblowers, two workers at a Coven Carrier Group warehouse in Augusta, Georgia, allege that since at least 2007, Covan padded their bills for relocating personnel by lying about shipment weights. The whistleblowers claim that managers falsified weight tickets, including by forging documents or “whiting” out portions of the documents. A government audit revealed widespread misconduct. For example, in Pearl Harbor, Hawaii, military officials determined that Covan consistently claimed its shipments weigh about ten percent more than they actually do; the United States’ complaint has many other examples of fraud and alleges that it happened at all twenty-four Covan locations in the United States. See Covan Complaint.
The terms of the settlement are not yet announced, but DOD says the companies have billed $723 million to the government for the shipping and relocation services. Under the False Claims Act, the shippers could face up to three times the damage or loss to the government plus a civil penalty of between $5,500 to $11,000 per false claim (i.e. invoice). We expect the size of the settlement will depend on how much weight inflation there was and at what locations (for example, if it was ten percent across the board, then the single damages could be about $72 million; if it was limited in scope as the companies contend, it would be less), how much of a multiplier is applied to the single damages or loss figure (i.e. is it doubled or trebled which will likely depend on how egregious the conduct is), and how many, if any, civil penalties are assessed. In addition to damages and penalties, the companies could face debarment or exclusion by DOD from future federal contracts.
The FCA, also known as “Lincoln’s Law,” was first passed during the Civil War to recover for shoddy military equipment being billed to the Union Army. It is frustrating that companies are still ripping off the military for profit, but it is rewarding that the qui tam provisions of the FCA are working. We commend the two whistleblowers here for coming forward. Without them “blowing the whistle” in 2013, the fraud may never have been exposed.