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Texas Court Triples FCA Award to $663 Million; Whistleblower’s Share Is $199 Million

In October 2014 a jury in Marshall, Texas returned an eye-opening damages verdict of $175 million in a non-intervened False Claims Act whistleblower suit against Dallas-based guardrail manufacturer Trinity Industries.

Eyes opened a little wider on June 9, 2015 when federal district court judge Rodney Gilstrap issued a final judgment in the case. Judge Gilstrap tripled the award under the FCA law to $525 million, added $138 million in penalties and awarded the relator, Joshua Harman, owner of a small competitor of Trinity, 30% of the total or $199 million. Harman will also collect an additional $19 million from Trinity for legal fees and expenses.

Aside from the size of the relator’s award, the case is significant because Harman, who brought the suit in 2012 alleging that Trinity failed to inform the government about design changes that resulted in multiple product failures and deaths, pursued his claims without the participation of the government, which, Judge Gilstrap wrote, “left the full burden of prosecuting” that case to Harman and his attorneys.

Harman alleged that Trinity, a leading manufacturer of guardrails in use throughout the U.S. highway system, changed the design of its rail head known as the ET-Plus sometime between 2002 and 2005. Trinity did so without telling Federal Highway Administration officials, and then sold the guardrails to states that received federal reimbursement. The result of these design changes was that the guardrails could now pierce vehicles rather than absorb their impact. The suit alleged that not only did Trinity fail to disclose those changes to the FHWA, it never tested the units according to FHWA protocols and falsely certified that the guardrails were government-approved. While the FHWA partially approved the guardrails after a 2005 crash test, it remains unclear whether Trinity used the new ET-Plus for the test.

Judge Gilstrap wrote that the plaintiffs had “introduced substantial evidence” showing that Trinity “made the decision to modify the ET-Plus, conceal such modifications, and falsely certify that the ET-Plus units had been accepted” by the highway agency.

Trinity is defending other lawsuits, including more than 20 personal-injury cases alleging the ET-Plus is defective, shareholder suits accusing Trinity of inadequate disclosures and claims that the company defrauded states and counties by making the undisclosed changes.

The announcement of a final judgment comes at the same time that federal investigators are scrutinizing the relationship between Trinity and the Federal Highway Administration, which reviews safety tests of highway devices. The FHWA’s sign-off on the ET-Plus opened up hundreds of millions of dollars in federal taxpayer money to help reimburse states for purchases of the system.

If Trinity decides to appeal, however, the Fifth Circuit Court may lend a sympathetic ear. That court issued an unusual ruling just ahead of the Marshall trial stating that it believed Trinity had a “strong” legal argument that it had not violated the False Claims Act. The company said that if, as expected, it is required to post a bond equal to the full amount of the judgment while it appeals, it will take out an unsecured loan to do so.

            Trinity Industries’ primary business is building rail cars. Its highway products subsidiary is part of its construction products business, which had $546 million in sales last year, while the company as a whole earned $709 million, on sales of nearly $6.2 billion. Its shares traded on the Nasdaq stock exchange fell 2.7 percent to $29.23 following announcement of the final judgment.

Under the FCA, individuals who report fraud to the government are sometimes entitled to monetary awards. If you are aware of wrongdoing and would like to know more about your rights, please click here.

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Milberg Tadler Phillips Grossman LLP
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