Purcell v. Mwi Corporation

..

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,
ex rel. ROBERT R. PURCELL,

Plaintiffs,

v. Civil Action No. 98-2088 (GK)

MWI CORPORATION,

Defendant.

MEMORANDUM OPINION

This matter comes before the Court for ruling after a jury

trial. The jury found Defendant MWI Corporation ("Defendant" or

"MWI") liable for violations of the False Claims Act ("FCA"), 31

U.S.C. § 3729(a) (1), (2).

The parties were ordered to submit supplemental briefs

addressing the issue of damages. Plaintiff United States ("the

Government") filed a Motion for Entry of Judgment ("U.S. Mot.")

[Dkt. No. 458]. Defendant MWI Corporation ("Defendant" or "MWI")

filed a Memorandum of Points and Authorities Regarding the

Calculation of Damages ( "MWI Mem. ") [Dkt. No. 459] .

Subsequently, the Government filed a Response to MWI' s

Memorandum ("U.S. Resp. ") [Dkt. No. 463], Relator Robert R.

Purcell ("Relator" or "Purcell") filed a Response to the

Government and MWI' s Calculation of Damages Regarding Entry of
Judgment ("Relator Resp. ") [Dkt. No. 464], and MWI filed a

Response to United States' Submissions ( "MWI Resp. ") [Dkt. No.

465] . After consideration of those submissions, the

representations of the parties at the damages hearing held

December 19, 2013, and the entire record herein, the Court will

now address the issues raised and determine the amount of

damages.

A. Factual Background

In 1992, MWI, a Florida corporation, arranged to sell

irrigation pumps and other equipment to seven Nigerian states.

The total sale price was $82.2 million dollars.

To finance these sales, MWI and the Federal Republic of

Nigeria ("Nigeria") sought and received eight loans from the

Export- Import Bank of the United States ("Ex- Im") , an agency of

the United States that finances and facilitates transactions

between U.S. exporters and international buyers. Ex-Im agreed to

finance the deal and loan Nigeria $74.3 million dollars. Nigeria

would pay back the $74.3 million dollars, as well as interest

and fees, and the individual Nigerian states would pay the

remainder of the $82.2 million dollar price.

Before Ex-Im would approve the loans to Nigeria, it

required MWI to submit a "Letter of Credit Supplier's

Certificate" for each of the eight loans. On each of those eight

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Letter of Credit Supplier's Certificates, MWI attested that it

had only paid "regular commissions" in connection with the pump

sales.

After Ex-Im approved the loans, but before it disbursed any

funds, it required MWI to submit a "Disbursement Supplier's

Certificate." MWI attested on fifty Disbursement Supplier's

Certificates that it had paid only "regular commissions" in

connection with the pump sales. Thus, MWI submitted eight Letter

of Credit Supplier's Certificates and fifty Disbursement

Supplier's Certificates to Ex-Im. 1

In 1998, Relator Robert Purcell, a former employee of MWI,

filed this action against MWI under the FCA [Dkt. No. 1] He

alleged that MWI paid commissions in excess of 30 percent of the

contract prices for the irrigation pumps and equipment to its

long-time Nigerian sales agent, Alhaji Mohammed Indimi. Id.

,, 35-37. Purcell alleged that those commission payments were

"irregular" and thus should have been disclosed on all of the

Supplier's Certificates that MWI submitted to Ex-Im. Id.

1
MWI argued for the first time in its Response that the
Complaint identified only 48 Disbursement Supplier's
Certificates and did not identify any Letter of Credit
Supplier's Certificates. MWI Resp. at 10. At trial, MWI did not
challenge the Government's evidence or testimony regarding 58
total Supplier's Certificates, and therefore the Court accepts
these figures as correct.
-3-
 In April of 2002, the United States decided to intervene,

and filed a complaint which then governed the proceedings

("Complaint") [Dkt. No. 18] . Based in part on the amount of

commissions paid to Indimi, which at the time was estimated to

be approximately $28 million dollars, 2 the Complaint alleged two

violations of the FCA (Counts I and II) and two common law

claims for unjust enrichment and payment by mistake (Counts III

and IV)

The case was litigated for several years before Judge

Ricardo M. Urbina. After Judge Urbina's retirement, the case was

reassigned to Judge Colleen Kollar-Kotelly, and then to this

Court. After resolving many pre-trial motions, the case went to

trial on November 6, 2013.

Counts I and II of the Complaint, the FCA violations, were

to be decided by the jury. It was instructed that, if it found

that MWI had violated the FCA, it was to identify the specific

number of false claims and then "assess the amount of damages,

2
At trial, the Government argued that MWI had paid $25 million
dollars in commissions to Indimi, not $28 million. See, e.g.,
Pls. Opening St., Trial Tr. Nov. 8, 2013, A.M. Session at 25:9-
12 (telling jury it needed "to decide whether MWI knew or should
have known that the $25 million payment to Mr. Indimi was
irregular and that it should have been disclosed"); Pls. Closing
Arg., Trial Tr. Nov. 21, 2013, A.M. Session at 50:20-22 ("$25
million in Ex-Im funds went into the bank account of MWI's
Nigerian agent Alhaji Indimi."); id. at 76:10-12 (suggesting
that amount United States "unknowingly paid to Mr. Indimi," $25
million, be considered as measure of damages) .
-4-
if any, that the [G] overnment sustained because of MWI' s acts."

Closing Instructions, Trial Tr. Nov. 21, 2013 A.M. Session at

41:13:18 (quoting 31 U.S.C. § 3729(a) (1), which states that

defendant is liable for "3 times the amount of damages which the

Government sustains because of the act of that person").

Iri order to assess the appropriate amount of damages, the

jury was instructed, under United States v. Science Applications

Int'l Corp., 626 F.3d 1257, 1278-79 (D.C. Cir. 2010), that

damages were "the amount of money the government paid because of

the false claims over and above what it would have paid had MWI

not made the false claims," and that it would need to "set an

award that puts the [G] overnment in the same position as it

would have been in if the defendant's claims had not been

false." Closing Instructions, Trial Tr. Nov. 21, 2013 A.M.

Session at 41:19-24. 3

On November 25, 2013, the jury returned a verdict for

Plaintiffs on both Counts I and II. The Government then

dismissed Counts III and IV of the Complaint, its common law

claims, with prejudice. Trial Tr. Nov. 25, 2013, A.M. Session at

22:18-20.
3
The Government did not object to the damages instructions. MWI
objected, arguing that the Court should instruct the jury that
the Government also had to prove proximate causation and actual
reliance. Closing Instructions, Trial Tr. Nov. 20, 2013, P.M.
Session at 121:22-25. It had no other objections to the
instruction. Id. 122:10-12.
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 B. Standard of Review

Under the FCA, "if [the jury] finds liability, its

instruction is to return a verdict for actual damages, for which

the court alone then determines any multiplier, just as the

court alone sets any separate penalty." Cook Cty., Ill. v.

United States ex rel. Chandler, 538 U.S. 119, 132 (2003) (citing

31 U.S.C. § 3729(a)). Thus, it is now the Court's job to

calculate the "civil penalty of not less than $5,000 and not

more than $10,000, plus 3 times the amount of damages which the

Government sustains because of" MWI' s actions. See 31 U.S. C.

§ 3729 (a)

The "chief purpose of the (Act's civil penalties) was to

provide for restitution to the government of money taken from it

by fraud, and that the device of [treble] damages plus a

specific sum was chosen to make sure that the government would

be made completely whole." United States v. Bornstein, 423 U.S.

303, 314 (1976) (citing United States ex rel. ·Marcus v. Hess,

317 U.S. 537, 551-52 (1943)). In order to make the Government

"whole," the Supreme Court has instructed that "the Government's

actual damages are to be [trebled] before any subtractions are

made for compensatory payments previously received by the

Government from any source." Bornstein, 423 U.S. at 316.

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 C. Actual Damages

First, the jury found that MWI knowingly presented 58 false

or fraudulent claims for payment to the Government, in violation

of 31 U.S.C. § 3729(a) (1). Verdict Form, at 1 [Dkt. No. 453].

Second, it found that the amount of damages the Government

sustained because of those claims was $7,500,000. Id.

The jury also found that MWI knowingly made 58 false

records and/or false statements that were material to the

Government's decision to pay or approve false or fraudulent

claims for payment, in violation of 31 U.S.C. § 3729(a) (2).

Verdict Form, at 2. It found that the amount of damages the

Government sustained because of those false records or

statements was $7,500,000.

The Government concedes that the total amount of actual

damages for both counts is $7,500,000. U.S. Mot. 3 at 1. The

only party that disagrees is the Relator, who argues that the

jury intended to award $7.5 million in damages for each count,

for a total of $15 million. Relator Resp. at 2-3.

Relator's argument that the jury split the amount of

damages between the two counts is nothing more than speculation.

Relator ignores the important fact that the jury identified the

same 58 Supplier's Certificates for both Counts. At trial, the

Government argued that each of the 58 Supplier's Certificates

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constituted a false claim and/or a false statement. Pls.'

Closing Arg., Trial Tr. Nov. 21, 2013, A.M. Session at 62:12-13

("MWI's certifications on the 58 Supplier's Certificates that it

submitted to Ex-Im were false."). Thus, it is clear that the

jury determined that the same conduct, the submission of the 58

Supplier's Certificates, was a violation of both Count I and

Count II. To aggregate the two sums would be to punish MWI twice

for the same conduct, which would "amount to a double recovery."

See Kakeh v. United Planning Org., Inc., 655 F. Supp. 2d 107,

122 (D.D.C. 2009) ("It is well-settled that a plaintiff is not

permitted to recover multiple awards for the same injury.")

(citing supporting cases) .

The jury found that the 58 false certifications damaged the

Government by $7,500, 000 and therefore that is the amount of

actual damages.

D. Treble Damages

An entity found liable for a violation of the FCA is liable

for "3 times the amount of damages which the Government sustains

because of the act of that person." 31 U.S. C. § 3 72 9 (a) . The

parties agree that the first step in calculating treble damages

is to treble the actual damages amount. See Bornstein, 423 U.S.

at 316. Thus, the treble damages amount is $7,500,000 x 3

$22,500,000.

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 E. Offset for Compensatory Payments Under Bornstein

The real and difficult issue in the calculation of

total damages is whether, under Bornstein, MWI is entitled to an

offset of the $108 million dollars that the Ex-Im eventually

received from the federal Nigerian government as repayment of

the loans at issue.

1. United States v. Bornstein

Bornstein involved a Government contract for radio kits

with a prime contractor, Model Engineering. 423 U.S. at 307. A

subcontractor, United, knowingly sold Model Engineering electron

tubes for inclusion in the radio kits that did not conform to

the specifications of the Government contract. After the

Government discovered the nonconforming electron tubes, Model

Engineering paid the Government the difference in value between

the radio kits as specified in the contract and the radio kits

as supplied with the nonconforming electron tubes. Id.

Subsequently, the Government sued United under the FCA and

prevailed. Id. at 308. A key issue before the Supreme Court was

whether the amount of damages owed by United to the Government

should be offset by the amount of Model Engineering's payments

to the Government, or whether the amount of damages should be

-9-
doubled 4 before any subtractions should be made for Model

Engineering's payments. Id. at 314. Significantly, the

Government did not argue that Model Engineering's payments

should not be deducted at all -- the question was when to deduct

the payments. See id. at 314 n. 9 (noting that Government had

"abandoned" the position that "any compensatory payments it

received should not be deducted from its statutory damages at

all").

After evaluating the "language and purpose" of the FCA, the

Supreme Court concluded that, "in computing the double damages

authorized by the Act, the Government's actual damages are to be

doubled before any subtractions are made for compensatory

payments previously received by the Government from any source."

Id. at .316-17.

2. Issue Presented

It is undisputed that Nigeria eventually paid approximately

$108 million to the Ex-Im on the loans at issue the $74.3

million dollar principal and $33.7 million dollars in interest

and fees. MWI argues that, under Bornstein, the $108 million

that Nigeria paid the Government should be considered

4
The FCA was amended in 1986 and now provides for treble, not
double, damages. See Cook Cty., Ill. v. United States ex rel.
Chandler, 538 U.S. 119, 129-30 (2003) (discussing Congressional
modernization of FCA in 1986, including raising the ceiling on
damages from double to treble) .
-10-
"compensatory payments previously received by the Government

from any source" and subtracted from the amount of treble

damages MWI owes the Government. Because the $108 million far

exceeds the $22.5 million MWI owes the government as treble

damages, MWI insists that, after applying the offset, it owes

nothing to the Government in damages.

MWI also argues that an offset for these payments is

mandatory under Bornstein and that the Court has no discretion

about whether or not to apply it in this case. MWI Mem. at 2-4.

That is incorrect. Bornstein did not define what constituted a

"compensatory payment," nor did it address the argument raised

by the Government in this case that certain compensatory

payments need not be deducted from statutory damages. 423 U.S.

at 314 n.9. Moreover, the Bornstein Court did not address a

situation where the compensatory payments to be subtracted are

larger than the single damages amount, much less, as in this

case, entirely dwarf the treble damages amount.

Thus, there are several questions raised in this case that

were neither raised nor addressed in Bornstein. MWI' s argument

that Bornstein resolves this issue without further analysis

ignores the complexity of the issue.

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 3. MWI's Alleged "Influence" of Nigeria's Repayment

The Government's first argument is that the Nigerian loan

repayments were not "compensatory payments" because they were

only made after MWI lobbied Nigeria to repay its loans at the

expense of other loans due the Ex-Im. U.S. Mot. at 3-5. For the

reasons set out below, the Court concludes that the Government

failed to prove that MWI did in fact lobby the Nigerian

government to repay the MWI loans after learning that its

conduct was being investigated. Nor has the Government provided

any evidence that Nigeria would have paid off other loans to the

Ex-Im if it had not paid off the MWI loans.

The primary evidence the Government identifies in support

of its argument is the deposition testimony of Steve Ahaneku, a

Nigerian attorney. Ahaneku did not testify at trial, nor did the

Government call him as a witness at the damages hearing.

Instead, the Government relies on Ahaneku's deposition testimony

that "someone at [MWI] talked to [him] about talking to the

Nigerian officials specifically about repaying the EXIM loans

that related to the Eight-State Projects." U.S. Mot. Ex. 2 at 3. 5

Based on this deposition testimony, the Government argues

that after MWI "became aware of a criminal investigation into

5
Though the parties did not raise the issue, this testimony
would likely have been inadmissible at trial as hearsay. Fed. R.
Evid. 802.
-12-
their conduct," MWI paid Ahaneku "to convince Nigerian officials

to pay off the MWI loan while other Exim loans were in default."

U.S. Mot. at 3. The testimony clearly does not support this

allegation.

The Government's assertion that Ahaneku was having these

conversations "right around the time" that MWI discovered the

investigation is incorrect. Ahaneku identified the time period

when he was asked to speak to Nigerian officials about repaying

the loans as between 1995, 1996, and 1997. Id. at 2. Although

the parties dispute when MWI became aware of the investigation

into its conduct, the Government does not suggest that MWI was

aware of any investigation prior to December 1998. U.S. Resp. 7

n.3. That date is well after the period that Ahaneku was

discussing in his deposition. Thus, Ahaneku' s testimony about

speaking to Nigerian officials in the mid-1990s does not support

the Government's assertion about what MWI did after it became

aware of the investigation in the late 1990s.

Second, Ahaneku's testimony does not support the

Plaintiffs' argument that MWI lobbied Nigerian officials to pay

off the MWI loans because MWI feared future liability. Instead,

Ahaneku testified that MWI sought to discuss the loans with

Nigerian officials because "officials come and go." Id. Ex. 2 at

2. Ahaneku noted that MWI was interested in assuring that the

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loans were repaid because "it is an obligation, it's an

outstanding obligation. The name is associated with it so they

would like it to be tidied up." Id. at 3. The Government did not

cite to any other portions of Ahaneku's deposition that impeach

the credibility of this witness or his testimony, nor did it

cite to any other testimony or evidence that contradicts the

testimony. 6

Consequently, the Government has failed to persuade the

Court that Ahaneku' s testimony stands for anything other than

the fact that, before MWI knew about any investigation into its

conduct, its agent spoke to Nigerian officials in an attempt to

ensure that loans that involved MWI were repaid.

Other evidence marshaled by the Government also fails to

supports its allegations. The Government notes the deposition

testimony of James Hess, Ex- Im' s Chief Financial Officer, who

stated that Nigeria "singled out" the MWI loans for repayment.

U.S. Mot. at 4, Ex. 3 at 1. However, Hess also testified that

there was "nothing improper" about Nigeria choosing to make

those payments, and that the Ex-Im would "rather have that money

than not have it." Id. at 2.

The Government emphasizes that after MWI knew about this

lawsuit, in 2002, it retained an American lawyer, Warren Glick,
6
Naturally, there was an opportunity for cross-examination at
the deposition.
-14-
to determine Nigeria's indebtedness on the MWI loans. U.S. Mot.

at 4. The Government argues that MWI paid Glick to request

information about the loans from the Ex-Im under the Freedom of

Information Act ( "FOIA") , and insinuates that MWI took that

information and used it to influence Nigeria to repay the

remaining balance. Id. at 4-5. Again, the evidence does not

support the Government's chain of inferences.

The record shows that the vast majority of the loans were

repaid well in advance of Glick's FOIA request. 7 Indeed, Ex-Im's

response to Glick's FOIA request states that the remaining

balance on the loans was approximately $270,000. U.S. Mot. Ex. 5

at 2. That constitutes less than 1% of the entire amount of the

loans in question. In addition, the Government has presented no

evidence that anyone from MWI interacted-with Nigerian officials

about the MWI loans after the FOIA request was made. Thus, the

evidence cited by the Government simply does not support its

allegations.

In addition, the Court notes that, even if the Government

had identified evidence that MWI petitioned Nigeria to pay off
7
Approximately 42% of the loans were repaid by December 1998,
the earliest date the Government suggests MWI could have known
about an investigation into its conduct. See Def. Exs. 321, 331,
364, 370, 382, 397, 416, 424. The loans were almost entirely
paid off by May 3, 2001, over seven months before MWI received a
copy of the Relator's Complaint and sent its FOIA request to the
Ex-Im. See id.; see also U.S. Mot. Ex. 5 at 2 (Glick's FOIA
request, dated January 16, 2002).
-15-
the MWI loans, such actions would not have been inappropriate.

The Government cites no law, regulation, or case precluding MWI

from lobbying Nigeria to take particular actions within

Nigeria 1 s discretion. 8 See MWI Mem. at Ex. 3 at 6 (Hess testimony

that there was nothing "inappropriate or impropertt about Nigeria

choosing to repay the MWI loans) . The Government fails to

acknowledge the indisputable fact that Nigeria has the right to

pay off its debts in whatever order it chooses.

The Government tries to avoid this fact by inferring that,

had MWI not petitioned the Nigerian government to pay off the

MWI loans,· Nigeria would have applied those funds to other Ex-Im

loans. Again, it provides no evidence to support that

proposition. Thus, the Government 1 S argument is pure

speculation.

Since the Government has failed to provide a factual basis

for its allegation that Nigeria repaid the loans in question at

MWI, s behest, or that Nigeria did so at the expense of other

loans to the Ex-Im, the Court rejects the Government,s argument

that Nigeria 1 s repayments were not "compensatory payments. 11

8
Moreover, the evidence at trial showed that the Ex-Im actually
required MWI to lobby Nigeria to repay other loans it owed to
the Government as a prerequisite to granting the loans in this
case. Test. of William Bucknam, Trial Tr. Nov. 8, 2013 P.M.
Session at 51:7-53:2 (testifying that Ex-Im officials required
MWI to collect unrelated arrearages from Nigeria in order to
make credits operative) .
-16-
 4. "Compensatory Payments"

The next issue that must be addressed is whether the

Nigerian loan repayments are "compensatory payments'' under

Bornstein. 9 Neither the parties nor the Court have identified any

factually-comparable case under the False Claims Act that

provides helpful guidance on this issue. In the absence of

specific guidance, the Court looks to Bornstein and its progeny.

As noted above, the Government did not argue in Bornstein

that prime contractor Model Engineering's settlement payments to

the Government were not compensatory payments, nor did the

Government argue that compensatory payments should not offset
9
MWI claims that the Government is judicially estopped from
•
arguing that the Nigerian repayments are not "compensatory." MWI
Resp. at 2-3. A court may invoke judicial estoppel "where a
party assumes a certain position in a legal proceeding, succeeds
in maintaining that position, and then, simply because his
interests have changed, assumes a contrary position." Moses v.
Howard Uni v. Hosp., 606 F. 3d 789, 798 (D.C. Cir. 2010) (internal
quotation marks and citations omitted) . MWI points out that the
Government argued before trial that evidence of Nigerian
repayment should not be presented to the jury specifically
because the repayments were compensatory payments under
Bornstein. Id. (citing United States' Mot. Seeking
Reconsideration of the Court's Damages Rulings, at 4-5 [Dkt. No.
416] )

This Court did not adopt the Government's position that the
Nigerian repayments were "compensatory payments" that would
necessarily offset any damages. See Order on Mot. for
Reconsideration at 8 [Dkt. No. 425] (noting that if the jury
determined the Government suffered damages, "the Court will then
decide" whether MWI is entitled to a reduction based on
Nigeria's repayments) (emphasis added) . Thus, the Government did
not "succeed" in maintaining its position, and judicial estoppel
is inapplicable.
-17-
the FCA liability of the subcontractor. The only question was

when the payments should be used to offset liability -- before

or after calculation of treble damages. See 423 U.S. at 314 n.9

(noting that Government "abandoned" the position that "any

compensatory payments it received should not be deducted from

its statutory damages at all").

The Supreme Court posited that the Government may have

abandoned this position "for the reason that since United is

liable to Model for Model's payment to the United States, United

would in effect be assessed triple damages under such a rule."

Id. ThGs, the Court recognized the basic principle that, in a

case involving joint tortfeasors, the liability to the

Government is a shared liability that must be apportioned

accordingly. See United States ex rel. Bunk v. Birkart

Globistics, Nos. 1:02-cv-1168, 1:07-cv-1198, 2011 WL 5005313, at

*16 (E.D. Va. Oct. 19, 2012) ("It is generally agreed that when

a plaintiff settles with one of several joint tortfeasors, the

non-settling defendants are entitled to a credit for that

settlement.") (citation omitted); United States ex rel. Miller

v. Bill Harbert Int'l Constr., Inc., 501 F. Supp. 2d 51, 54-55

(D.D.C. 2007) (noting that "where there is a settlement between

the plaintiff and one defendant, the liability of the remaining

non-settling defendants must be calculated with reference to the

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jury's allocation of the non-settling defendant's

responsibility") (internal quotation marks and citation

omitted).

That reasoning could be used to distinguish this case,

because no evidence was presented nor argument made that Nigeria

should be jointly or severally liable for MWI' s false claims.

See United States v. Hawley, 562 F. Supp. 2d 1017, 1025 (N.D.

Iowa 2008) (noting that Bornstein does not stand for "the broad

proposition that a defendant in a FCA case is entitled to a

credit for any amounts recovered by the United States from

anothe~ party," but instead "stands for the quite different

proposition that a tortfeasor, such as a subcontractor, is

entitled to a credit for compensation that the United States has

recovered from another tortfeasor, such as a prime contractor").

However, the majority of post-Bornstein cases have not made this

distinction.

Rather, the cases have applied the Supreme Court's

statement in Bornstein that the offset encompasses "compensatory

payments previously received from any source" literally. 423

U.S. at 316 (emphasis added) In particular, this issue has

arisen in cases where individuals were found liable for

fraudulently procuring federal loans, but the beneficiaries of

those loans made payments on the underlying loans to the

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Government. See United States v. Heck, No. 08-0875, 1987 WL

49253, at *6 (D.N.J. Mar. 26, 1987) (holding that defendant was

entitled to offset including "amounts recovered from other

parties"); United States v. Ekelman & Ass'n, Inc., 531 F.2d 545,

547 (6th Cir. 1976) (decided immediately after Bornstein and

holding that offset should include "any amount recovered from

the veteran-mortgagor by the government") ; United States v.

Globe Remodeling Co., 196 F. Supp. 652 (D. Vt. 1960) (finding,

pre-Bornstein, that offset for "repayments to the government

from the borrowers who defaulted" should be made "after doubling

the original losses").

Evaluating this line of cases, the District Court for the

District of Puerto Rico observed:

Nothing in these cases holds or suggests that
Bornstein's recoupment rule turns on the nature or
sdurce of the particular recoupment. Indeed, Bornstein
itself forecloses such an interpretation. Bornstein
twice emphasized that its holding applies to
subsequent payments received from the government "from
any source."

United States v. Irizarry-Colon, No. 05-1607, 2006 WL 6911517,

at *11. (D.P.R. June 9, 2006) (quoting Bornstein, 423 U.S. at

316)

The Government has brought no case to the attention of this

Court that holds that third-party payments on a loan that

underlies FCA liability should not be considered "compensatory

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payments." In the absence of any contrary precedent, this Court

finds that Nigeria's repayments are "compensatory payments

previously received from any source," and should thus offset

MWI's liability.

5. Limitation on the Amount of Offset to "Original
Loss"

The Government argues that, even if Nigeria's loan

repayments are "compensatory payments" and should offset the

amount MWI owes in damages, the Court should limit the amount of

the offset to the "original loss" of $7.5 million dollars.

To justify its reasoning, the Government argues that the

Court must segregate Nigeria's repayment into the "legitimate"

amount repaid and the amount it repaid on "the fraudulent

portion of the loan." U.S. Resp. at 2-3. It insists that to do

otherwise would allow "doublecounting," because there are two

separate obligations -- Nigeria's original obligation to repay

the loans and MWI's new obligation to pay damages. Id.

The Government has identified no precedent from either the

Supreme Court or our Court of Appeals that has applied such an

analysis. Its argument rests on two cases in which district

courts evaluated how to calculate a Bornstein offset when a

Defendant had pleaded guilty and paid an amount in criminal

restitution prior to a civil FCA suit. U.S. Resp. at 5-6

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(discussing United States ex rel. Schaefer v. ContiMed Concepts 1

No. 04-400 1 2010 WL 1485660 (W.D. Ky. Apr. 12 1 2010) ("Schaefer

II 11
) and United States v. Eghbal 1 475 F. Supp. 2d 1008 (C.D.

Cal. 2007)) These cases are factually distinguishable and do

not provide sufficient support for the Government s position. 1

Eghbal pleaded guilty to criminal charges of conspiring to

defraud the United States by fraudulently assisting purchasers

to obtain mortgages insured by the Department of Housing and

Urban Development in connection with the sale of 62 properties.

Eghbal, 475 F. Supp. 2d at 1011. He paid $1,346,220 in criminal

restitution based on those 62 properties. Amended Judgment and

Commitment Order/ United States v. Eghbal 1 No. 03-cr-465 (C.D.

Cal. Jan. 27 1 2004).

The Government then brought an FCA suit against Eghbal

based on 27 of the 62 properties. 475 F. Supp. 2d at 1011. The

Government sought damages of $2.8 million, trebled to $8.4

million/ less $2.1 million it recovered on re-sale and "Eghbal's

restitution payments of $499,387. 11
Id.

The Government argues that this case demonstrates that a

district court has discretion to apply only a portion of a

compensatory payment as an offset. The Court disagrees. The

parties in Eghbal did not dispute that the portion of the $1.3

million restitution payment that related to the 27 loans at

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issue in the civil suit was $499,387. Id. This comports with the

facts underlying the Government's civil suit the FCA suit

only related to 27 of the 67 loans at issue in Eghbal's criminal

proceeding. Thus, the district court was not choosing to apply a

portion of Eghbal's compensatory payments -- the court was only

applying the portion of Eghbal's restitution that was, in fact,

compensatory, based on the scope of the FCA case.

Schaefer is similar. Defendant Conti pleaded guilty to one

count of altering a prescription in 2007. See United States ex

rel. Schaefer v. ContiMed Concepts, No. 04-400, 2009 WL 5104149,

at *2 (W.D. Ky. Dec. 17, 2009) ("Schaefer I"). Conti then paid

almost $80,000 in criminal restitution to the Center for

Medicare Services and the State of Kentucky for various schemes

and conspiracies to alter and falsify medical records, including

the altered prescription underlying his criminal liability.

Judgment and Commitment Order, United States v. Conti, No. 06-

cr-152 (W.D. Ky. March 24, 2008); Order, United States v. Conti,

No. 06-cr-152 (W.D. Ky. July 27, 2009).

The Government brought a civil FCA suit, and the District

Court found that, based on the guilty plea, Conti was estopped

from denying the elements of one claim of falsifying a

prescription under 31 U.S.C. § 3729(a) (2). Schaefer I, 2009 WL

5104149, at *6. The court later found that the "actual damages

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from that single count [were] $404.24. 11
Schaefer II, 2010 WL

1485660, at *3. It trebled that amount, and found that Conti was

liable for $1212.72, in addition to a civil penalty of $5,500,

for a total of $6,712.72. Id.

Conti argued that the approximately $80,000 he had paid in

criminal restitution should offset his entire civil judgment.

Id. The Government argued that "only the compensatory portion of

the judgment should be offset, 11
id., and the Court agreed,

subtracting only "the compensatory component, $404.24, 11
from the

civil judgment. Id. at *4.

Thus, the Schaefer and Eghbal courts found that only the

portion of the criminal restitution payment related to the

factual conduct underlying the false claim at issue in the

subsequent FCA case should be offset under Bornstein. Because

the excess amounts paid in criminal restitution were paid for

unrelated conduct, the Court refused to apply those amounts as

an offset.

Here, the Government argued, and the jury found, that

Defendant was liable for its certifications on all 58 Supplier's

Certificates related to the eight Nigerian loans. The Nigerian

repayments were related to those same eight Nigerian loans.

Thus, Schaefer and Eghbal do not provide guidance in a situation

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such as this one, where the entire amount paid by Nigeria is

unquestionably related to the underlying false claims.

The Government makes a public policy argument that allowing

Nigeria's repayments to offset the entirety of MWI liability

will "severely undermine Congress's intent to hold defendants

accountable for defrauding the United States and deter others

from engaging in similar misconduct." U.S. Resp. at 6 (citation

omitted). However, neither the language of the statute nor any

prior case provides support fdr this Court to divide Nigeria's

repayments into compensatory and non-compensatory payments in

light of the fact that the jury found liability for all of the

loans in their entirety. Thus, in accord with the cases cited,

this Court will subtract the full amount of the compensatory

payments made by Nigeria from the trebled damage amount, as

instructed in Bornstein. 423 U.S. at 316 (holding that "actual

damages are to be doubled before any subtractions are made for

compensatory payments previously received by the Government from

any source") (emphasis added) .

This result accords with the Supreme Court's declaration in

Bornstein that "the device of [treble] damages plus a specific

sum was chosen to make sure that the government would be made

completely whole." Id. at 314. Despite the fraudulent actions

taken by MWI to persuade the Government to make these loans,

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 •·

they were in fact paid back in full with interest and fees.

Indeed, the Government received a total o"f approximately $108

million on these loans from Nigeria -- $33.7 million more than

the largest amount it pursued in damages, $74.3 million. That

$33.7 million alone exceeds the $22.5 million in treble damages

owed by MWI. Thus, the Government has been "made completely

whole" because of Nigeria's repayments, and, thus, granting MWI

an offset for those payments does not conflict with Bornstein.

The Court also notes that this outcome is in accord with

United States ex rel. Davis v. Dist. of Columbia, 679 F.3d 832

(D.C. Cir. 2012). Davis sued the District of Columbia for

submitting a Medicaid reimbursement claim without adequate

supporting documentation. Id. at 834. Davis did not allege,

however, that any medical services that the Government paid for

were not provided. Id. at 840. Thus, because the only defect was

documentary, the Court of Appeals upheld the district court's

conclusion that "[t]he Government got what it paid for and there

are no damages." Id. Although the factual and procedural posture

of that case is very different, Davis still stands for the

proposition that there are cases where fraud on the Government

has occurred but, because the Government has gotten what it paid

for, the Government's recovery is limited to civil penalties.

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 In short, the Court concludes that, in the absence of any

contradictory precedent, the Court will apply the $108 million

dollars repaid by Nigeria against the $22.5 million trebled

damage amount. Thus, MWI owes nothing in damages. 10

F. Civil Penalties

The Court now turns to the appropriate amount of statutory

civil penalties which should be imposed. 11 The FCA establishes a

statutory penalty of $5,000 to $10,000 for each false claim or

false statement. 31 U.S.C. § 3729(a) (establishes that liable

entity must pay "civil penalty of not less than $5,000 and not

more than $10,000"). The jury identified 58 false claims. 12

10
If Congress agrees with the Government that this result is
undesirable, it could change either the wording of the treble
damage provision or increase the civil penalties, as it has done
in the past. See, e.g., False Claims Amendments Act of 1986,
Pub. L .. 99-562, § 2 (7), 100 Stat. 3153 (raising the civil fines
and changing the multiplier for damages from double to treble).
11
MWI did not argue that it was entitled to any offset against
the amount it owes in statutory civil penalties.
12
MWI initially agreed with Plaintiffs that the jury's
determination that MWI made 58 false claims provided the
appropriate number of penal ties. However, in its Response, MWI
argued for the first time that the Complaint did not identify
the eight Letter of Credit Supplier's Certificates and only
identified 48 Disbursement Supplier's Certificates, and now
argues that 48 was the appropriate number of false claims for
the Court to use in setting civil penalties. MWI Resp. at 10.
As noted above, see supra note 1, MWI did not challenge the
Government's testimony or evidence at trial identifying 58 total
Supplier's Certificates issued on the underlying loans at issue
in this case. The jury found each of those documents to be a
false claim and/ or false statement. Thus, MWI' s belated
challenge to the jury's finding will be denied, and the Court
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 The parties agree that the appropriate range for the

statutory penalties is $5,000 to $10,000. 13 The determination of

the appropriate statutory civil penalty is firmly within the

discretion of the district court. Bill Harbert, 501 F. Supp. 2d

at 56 (citing Cook County, 538 U.S. at 132) . The parties also

agree that the Court should consider the "totality of the

circumstances" in determining the appropriate amount of

penalties. U.S. Mot. at 7; MWI Mem. at 16. As the district court

observed in Bill Harbert:

Though there is no defined set of criteria by which to
assess the proper amount of civil penal ties against
the defendant, the Court finds that an approach
considering the totality of the circumstances,
including such factors as the seriousness of the
misconduct, the scienter of the defendants, and the
amount of damages suffered by the United States as a
result of the misconduct is the most appropriate.

will set civil penalties based on the 58 false claims identified
by the jury.
13
The Federal Civil Penalties Inflation Adjustment Act of 1990
("Adjustment Act"), Pub. L. No. 101-410, § 5, provides for
periodic increases to civil monetary penal ties. In 1996, the
Omnibus Consolidated Rescissions and Appropriations Act of 1996
was passed, and it included the Debt Collection Improvement Act
of 1996 ("Improvement Act"). Pub. L. No. 104-134, § 31001. The
Improvement Act amended the Adjustment Act to require the head
of each agency to regularly adjust civil penalties for
inflation. Id. § 13001(s) (1) (A). In 1999, the Department of
Justice complied by issuing regulations raising such penalties,
including False Claims Act penalties. 64 Fed. Reg. 47,099,
47,903-04 (Aug. 30, 1999). However, the regulations specified
that the increase was only "effective for violations occurring
on or after September 29, 1999." Id. 47,903. The parties agree
that the conduct at issue here took place before that date, and,
thus, MWI is not subject to the increased penalties.
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501 F. Supp. 2d at 56 (citation omitted). Under the totality of

the circumstances, including consideration of the enumerated

factors, the Court finds that the appropriate penalty is $10,000

per false claim for the following reasons.

First, the Court finds that the evidence regarding scienter

weighs in favor of a high penalty in this case. Specifically,

the Court finds that there was evidence that Mr. Eller,

President of MWI, had actual knowledge that the commissions

should have been disclosed. When repeatedly asked whether or not

Indimi's commissions were disclosed on the Supplier's

Certificates, Eller refused to answer directly. Instead, he kept

repeating that MWI "would have never done anything wrong." Test.

of David Eller, Trial Tr. Nov. 8, 2013, A.M. Session at 106:6-

108:17; 111:10-112-1 (the Court asking Eller the question). He

insisted he was "just an engineer," id. at 109:21, and claimed

that he signed the Supplier's Certificates on the advice of his

attorney, William Bucknam, or his Chief Financial Officer,

Thomas Roegiers. Id. at 107:6-13; 109:10-21; 111:2-3; 113:12-14.

However, MWI employees testified that Eller personally

approved every commission MWI paid, including Indimi's

commissions. Test. of Thomas Roegiers, Trial Tr. Nov. 19, 2013,

A.M. Session at 20:9-23; Test. of Juan Ponce, Trial Tr. Nov. 13,

2013, A.M Session at 9:22-10:8, 14:14-21. Moreover, Eller

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testified that MWI never paid any other agent on any other

combined project a total commission of more than $5 million, far

less than some of the commissions Indimi was paid for single

projects. Id. at 120:11-22. Thus, despite his protests that MWI

would never engage in wrongdoing, Eller signed several

Supplier's Certificates declaring that no irregular commissions

had been paid even though he knew that Indimi's commissions were

significantly higher than average commission rates, even within

MWI.

Second, the evidence of actual knowledge suggests

deliberate misconduct, which goes to the seriousness of the

offense. Juan Ponce, MWI's Vice President of International Sales

and a credible witness, testified, "we knew that we were

violating . the rules. We just hoped that we would never get

caught." Test. of Juan Ponce, Trial Tr. Nov. 13, 2013, A.M.

Session at 35:3-4. This evidence that MWI deliberately withheld

information about Indimi' s commissions from Ex-Im in order to

acquire financing supports a finding that "the conduct was

deliberate and serious enough to weigh in favor of applying the

maximum civil penalty." Bill Harbert, 501 F. Supp. 2d at 56.

Third, the Court considers the "amount of damages suffered"

by the Government. The harm to the Government was more than

monetary -- it went to the integrity and purposes of the Ex-Im's

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programmatic goals. See Test. of Rita Rodriguez, Nov. 14, 2013,

A.M. Session at 20:1-7 (discussing Ex-Im's goals to support U.S.

jobs and to avoid any involvement with bribery) . Given that

approximately a third of the total loan amount went to a single

Nigerian individual, the goal of the Ex-Im to finance loans that

primarily benefit U.S. exporters and workers was not achieved.

Test. of David Chavern, Trial Tr. Nov. 12, 2013, A.M. Session at

70:16-21 (noting that "purpose of the bank's financing is not

primarily to finance commissions; it's to finance the

export of goods and services"); see also Ab-Tech Const., Inc. v.

United States, 31 Fed. Cl. 429, 434-35 (Fed Cl. 1994) (noting

that penal ties are intended to "compensate the Government for

the costs of corruption," which include the "societal cost"

associated with abuse of a federal program) (internal quotation

marks and citation omitted) .

The Court also notes that the Government expended a massive

amount of resources to pursue this case over the years. In the

damages hearing, Government counsel represented that over 11,000

hours had been spent on the case. This consideration is relevant

to determining the appropriate civil penalty. See Morse Diesel

Int'l, Inc. v. United States, 79 Fed. Cl. 116, 125-26 (Fed. Cl.

2007) (considering that Government had "spent 13 years

investigating and prosecuting this case to date" in deciding

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maximum civil penalties were warranted); United States v.

Peters, 927 F. Supp. 363, 368-69 (D. Neb. 1996) (considering

"the costs of detection, investigation and prosecution" as part

of appropriate civil penalties); Ab-Tech, 31 Fed Cl. at 435

(determining that maximum civil penalty was "fully justified in

light of the extensive diversion of resources" that uncovering

defendant's fraud necessitated).

Considering the totality of the circumstances, the Court

concludes that a civil penalty of $10,000 per false claim

provides appropriate deterrence, reflects the seriousness of the

misconduct and evidence of actual knowledge, and helps

compensate the Government for the incredible amount of resources

invested in identifying and litigating this lengthy case to

successful conclusion.

G. Conclusion

The jury found that MWI violated the False Claims Act by

making 58 false claims and that the Government suffered $7.5

million dollars in damages. Even after the damages are trebled,

the amount that Nigeria repaid compensated the Government for

its loss. MWI is responsible, however, for $580,000 in civil

penalties.

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 An Order directing the Clerk to enter judgment accordingly

shall accompany this Memorandum Opinion.

February 10, 2014 ~~~·
Gla ys Kess er
United States District Judge

Copies to: attorneys on record via ECF

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