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United States ex rel. Bunk v. Birkart Globistics Gmbh & Co.

United States District Court, E.D. Virginia, Alexandria Division

December 24, 2014

UNITED STATES OF AMERICA ex rel. Kurt Bunk and Daniel Heuser, Plaintiffs/Relators,
v.
BIRKART GLOBISTICS GmbH & CO., et al., Defendants. UNITED STATES OF AMERICA ex rel. Ray Ammons, Plaintiff/Relator,
v.
THE PASHA GROUP, et al., Defendants.

MEMORANDUM OPINION

ANTHONY J. TRENGA, District Judge.

Following remand from the Fourth Circuit, this case was tried before a jury beginning on July 21, 2014. On August 1, 2014, the jury returned a verdict against Defendants Gosselin World Wide Moving, N.V. and Marc Smet with respect to two provisions of the False Claims Act, 31 U.S.C. §§ 3729(a)(1) and (a)(3). Presently before the Court is Defendants Gosselin World Wide Moving N.V. and Marc Smet's Renewed Motion for Judgment as a Matter of Law and Alternative Motion for New Trial [Doc. Nos. 1321 and 1322] ("the Motion"), on which the Court held a hearing on September 4, 2014.

Gosselin, located in Europe, provided services to American carriers who contracted with the United States to move the household goods of military personnel to and from Germany, known as the ITGBL program. The United States claims that Gosselin engaged in a fraudulent course of conduct that inflated rates the United States paid to American carriers under every ITGBL program contract it awarded during the 2001-2002 period, even those to carriers that did not use Gosselin's services. That fraudulent conduct, as described by the government, consists of "a scheme to eliminate competition from the ITGBL bidding process with the intent and effect of inflating prices that DOD paid for moves." See United States and Relators' Memorandum in Opposition to Defendants' Renewed Motion for Judgment as a Matter of Law and Alternative Motion for New Trial (hereinafter "Government's Brief'), Doc. No. 1325, at 4. See also Doc. No. 1298 ("[A]ll claims submitted during these rate cycles were false or fraudulent, because all moves for which the Department of Defense paid were the subject of an anticompetitive agreement that eliminated competition and inflated rates in what was an explicitly competitive program."). There was no evidence, however, and the government does not contend, that Gosselin made any false statements or certifications, express or implied, or that it failed to comply with any contract provisions, statutes, or regulations that were a term or condition for payment under or Gosselin's participation in the ITGBL program. Rather, the government contends that Gosselin's anticompetitive conduct alone is sufficient to impose False Claims Act liability, even if it does not constitute an anti-trust violation. See Doc. No. 1304, Tr. at 1169:6-16; 1191:2-5, 1200:25-1201:1-25 (arguing that any type of collusion that affects the ITGBL program constitutes fraud). This case therefore involves whether and to what extent the False Claims Act liability may be imposed on companies and individuals who do not (1) enter into any contracts with the federal government; (2) submit any claims to the federal government; (3) receive any funds directly from the federal government; (4) make any misrepresentations or fraudulent non-disclosures, express or implied, to the federal government or anyone who contracts with the federal government; (5) violate any contractual provisions, laws, regulations or statutes that constitute terms or conditions of payment to those who contract with or provide services to the federal government;(7) engage in anticompetitive conduct that violates any statutory or other prohibitions; or (6) collude or conspire with anyone who does any of the foregoing.

For the reasons discussed below, the Court concludes that the government's theory of liability is both unprecedented and untenable. There was no evidence that Gosselin engaged in any deceptions or misrepresentations and the evidence was therefore insufficient, as a matter of law, to support the jury's finding of liability under instructions that required the jury to find, in order to impose liability, that Gosselin engaged in conduct that "knowingly deceived" the United States and "knowingly caused" the government to enter into an ITGBL contract. For similar reasons, discussed below, the Court finds, in its capacity as fact finder on the issue of materiality, that Gosselin did not engage in conduct that was "material" to the government's awarding ITGBL contracts or making payments thereunder since Gosselin did not engage in any conduct that pertained to any term or condition of payment to the American carriers that submitted claims to the United States for payment. The Court also concludes that the evidence was insufficient for the jury to find that Gosselin caused a specific, identifiable false claim to be presented to the government for payment, or the total numbers of such claims, or to award damages. Finally, the Court concludes that if the Court's decision to enter judgment in favor of the Gosselin defendants is vacated or reversed on appeal, a new trial is warranted on all issues. For these reasons, the Court GRANTS the defendants' motion for judgment as a matter of law and also CONDITIONALLY GRANTS defendants' motion for a new trial pursuant to Fed. R. Civ. Pro. 50(c)(1).

I. BACKGROUND

The lengthy procedural history and facts of this case are set forth in detail in this Court's previous orders and memorandum opinions.[1] Briefly summarized, these consolidated actions were originally filed in 2002 by Relators Kurt Bunk and Ray Ammons but remained under seal until May 19, 2008. See Doc. No. 97. On July 18, 2008, the United States intervened as to all claims relating to the ITGBL program, but not as to certain other claims relating to a contract awarded to Gosselin in 2001 under the Direct Procurement Method (DPM) program. The case was tried beginning on July 18, 2011, and on July 28, 2011, following the close of the United States' case in chief, the Court dismissed the ITGBL claims other than those that related to two sets of transportation channels, referred to in this litigation as the Cartwright and Covan Channels, based on the antitrust immunity provision of the Shipping Act of 1984, 46 U.S.C. §§ 40301-40307. See Doc. No. 1032, Trial Tr. at 1031-64; Doc. No. 1072 (Memorandum Opinion). On December 19, 2013, the Fourth Circuit reversed this Court's ruling on immunity under the Shipping Act, vacated this Court's order based on its contrary ruling, and remanded the case for further proceedings. See Doc. No. 1167.

The retrial began on July 21, 2014.[2] On July 28, 2014, following the close of the United States' case in chief, the defendants moved for judgment as a matter of law. The Court reserved on the motion. The defendants then renewed their motion at the close of the evidence. At that time the Court granted, without opposition[3], the motion as to the United States' common law claims and 31 U.S.C. § 3729(a)(2) claim and did not grant the motion as to claims under 31 U.S.C. § 3729(a)(1) and (3), submitting those claims to the jury. On August 1, 2014, the jury returned its verdict in favor of the United States and against Defendants Gosselin World Wide Moving, N.V. and Marc Smet on both claims.[4] It also found that those defendants knowingly caused to be submitted 58, 950 false claims and awarded a total of $33.6 million in damages. Defendants Gosselin World Wide Moving, N.V. ("Gosselin") and Marc Smet now move for judgment as a matter of law or a new trial.

II. STATEMENT OF FACTS

The evidence at trial was in most material respects undisputed and essentially consisted of the same evidence presented at the first trial and discussed in this Court's Memorandum Opinion dated August 26, 2011. See Doc. No. 1072. Briefly summarized, that evidence, with disputed factual issues viewed most favorably to the government, established the following:

For decades the United States has transported the household goods of military personnel posted in Germany through the International Transportation Government Bill of Lading program, or ITGBL program. As the ITGBL program operated during the relevant time period, the Department of Defense ("DOD"), acting through the Surface Deployment and Distribution Command ("SDDC"), on a biannual basis, solicited bids for moves from American owned freight forwarding companies, also called carriers or Transportation Service Providers ("TSPs"). There were therefore two cycles per year, summer and winter, designated, for example, as IS01 for International Summer 2001 and IWO1 for International Winter 2001. The claims in this case involve the bids that were submitted by American carriers during the four cycles that occurred in 2001 and 2002: ISO1, IW01, IS02, and IW02.

Overall, there were one hundred and four channels between the United States and Germany, corresponding to different transportation routes: fifty-two westbound and fifty-two eastbound. The carriers submitted a separate bid, in the form of a dollar price per hundred weight, for each of the fifty-two channels, for as many or as few channels as they chose. During the relevant years, carriers filed their initial bids in November for the IS cycle, which started on April 1 in the following calendar year, and in May for the IW cycle, which started on October 1 of that same calendar year. The bidding took place pursuant to a two-step process. After carriers submitted their initial round of bids, the DOD published the five lowest rates. The lowest bid for a particular channel was known as the "prime rate, " and the carrier that submitted the lowest bid was guaranteed at least 10% of the total volume for that channel. After the publication of the five lowest rates, other carriers who had submitted bids in the initial round had the opportunity to match, or "me-too", those prime rates and thereby be guaranteed a particular percentage of the total volume for the channel.

The carriers adopted a variety of bidding strategies. Some would intentionally file a bid intended to set the prime rate. Others would file an "administrative high" bid that simply preserved their opportunity to file a subsequent bid in the me-too round. It was generally understood, and generally the case, that only those carriers that either set or me-too'ed the prime rate would receive a significant number of shipments in any given rate cycle. Indeed, it would appear from certain of the government's exhibits that, in a given rate cycle, less than five percent of the moves would ship at a rate above the prime rate. See, e.g., Gov. Ex. 157 for IS01.

Carriers generally did not perform all aspects of the moves themselves, but rather subcontracted certain portions of the move.[5] The inland portions of the moves within Germany, i.e., the packing or unpacking and line haul services in Germany, were performed by "local German agents, " essentially local moving companies. The moves also sometimes involved "general agents" that would act as intermediaries between the American carriers and the German local agents and other agents. Gosselin provided services as both a local agent and as a general agent.[6] Only the American carriers contracted directly with the United States. Only the American carriers received money from the United States and the United States paid directly to an American carrier the entire cost of a move pursuant to a voucher that presented for payment a government bill of lading ("GBL") particular to each move. The American carriers, in turn, paid the local and general agents they used to perform their transportation obligations to the United States.

Under the government's regulations, carriers were required to file what were called "compensatory bids." A "compensatory bid" was not defined, but it was generally understood that a compensatory bid was a bid that covered a carrier's costs and provided a reasonable profit. This requirement, however, does not appear to have been monitored or enforced by the government and as discussed below, certain carriers appear to have either set prime rates or metoo'd prime rates at prices that were below their overall costs in order to obtain a guaranteed percentage of total tonnage.

By the IWOO cycle, prime rates had dropped to historically low levels. There was uncontradicted evidence presented at trial that certain American carriers set prime rates or metoo'd prime rates that were for those particular carriers non-compensatory.[7] As a result, certain carriers received payment for the ITGBL services that were insufficient to cover all their costs and return a reasonable profit. Overall, these bidding practices, and the ITGBL rates they established, negatively affected the ITGBL program in several ways. For example, the local agents in Europe would often go unpaid or only partially paid by the American carriers; and as a result, the local agents, out of fear of non-payment, cut corners on such items as packing materials that affected the quality of the moves. This downward spiral of prime rates proved unsustainable for certain carriers; eleven carriers, including two that set a significant number of prime rates and were known for filing non-compensatory rates, went bankrupt in the 1999 to 2000 period. The SDDC was concerned with the quality of the moves affected by non-compensatory rates, and began to consider changes in the structure of the ITGBL program to eliminate its policy of accepting prime rates solely on the basis of price.[8] The local agents had other complaints about how they were being treated by the American carriers, including what they believed was the practice of certain American carriers to reduce payments to the local agents based on unsubstantiated claims that they were responsible for damage to goods that occurred at some point during the transportation process.

Against this backdrop, on November 14, 2000, Gosselin and five other local agents[9] met in Sonthofen, Germany and entered into an agreement that became known as the Sonthofen Agreement. Under the Sonthofen Agreement, the signatories agreed to work under a "landed rate" for the transportation of military household goods in the ITGBL program. The Agreement provided in its entirety: "We, the undersigned companies agree that as of 4/1/2001 we will be using landed rates' for the U.S. Military business." Gov. Ex. 14.

A landed rate was a single price offered to a TSP for that bundle of services necessary to deliver household goods to or from an American port and a military family's residence in Germany)[10] Gosselin had been offering landed rates to American carriers since the 1990s and the government does not challenge the use of a bundled rate, as such. Rather, the government objects to the Sonthofen Agreement on the grounds that, as understood by the signatories, it required the local agents to work as of April 1, 2001 exclusively under a landed rate, and not work under any contracts directly with an American carrier. As a practical matter, this agreement was understood to mean that the carriers could not contract directly with the local agents, who would work only through a general agent signatory, either Gosselin or ITO. While the evidence did not establish that the local agents agreed at Sonthofen on particular prices for their services, the signatories understood that the purpose of the Sonthofen Agreement was to raise the prices they would receive for their services as local agents in Germany. The signatories to the Sonthofen Agreement constituted approximately 70% of the market for local agents available for ITGBL services and some other non-signatory local agents supported it as well.

In order to implement the Sonthofen Agreement, Gosselin proposed separately to each of the local agents who signed the Sonthofen Agreement a written rate agreement contract which set forth the specific prices Gosselin would pay for their services. See, e.g., Gov. Ex. 24. Under that contract, Gosselin guaranteed that it would pay the local agent it hired within thirty days, thereby eliminating the credit risk associated with dealing with American carriers, and established a fund from which it would pay the carriers' claims for damaged goods.

Following the Sonthofen Agreement, the local agents informed the carriers of their intent to work only under the landed rate system. Gosselin also informed its American carrier customers that rates had increased and that the local agents would no longer be handling business at lower rates. Following the Sonthofen Agreement, Gosselin and ITO[11] entered into landed rate agreements with certain, but not all, American carriers; and carriers using landed rates set the majority of prime rates for the four cycles that comprised the alleged conspiracy period.

Prime rates increased in all channels for the ISO1 cycle over the previous year;[12] and certain signatories attributed that increase to the Sonthofen Agreement.[13] They also acknowledged as a general proposition that an increase in local agent rates would generally result in an increase in the landed rate.[14] The evidence was also sufficient to establish that once the Sonthofen Agreement went into effect, American carriers no longer had the same ability to negotiate rates directly with local German agents[15] and that carriers would generally pass along through higher rates any increases in costs, [16] although representative of two carriers testified that they did not always incorporate price increases into their bids to reflect higher costs.[17] There was, however, no evidence concerning the actual price impact the Sonthofen Agreement had on any particular prices, either for local agent services, Gosselin's general agency services, or any particular carrier's bids. More specifically, there was no evidence concerning what local agents, landed rate providers, or carriers would have charged in the absence of the Sonthofen Agreement; and the history of the ITGBL program showed repeated instances of sharp upward spikes in prime rates after the kind of prolonged decline in prime rates that had occurred in the years before IS01.

There was also uncontradicted evidence that, despite the Sonthofen Agreement, certain of its signatories did in fact, on occasion, contract directly with American carriers. For example, both signatories ITO and Christ offered services outside of the landed rate during IS01-IW02. There was also no evidence that any American carrier who wanted to contract directly with a local German agent was unable to do so; and certain carriers did obtain local agent services without using a landed rate.[18] The carrier Cartwright International Van Lines, in particular, which set a significant number of prime rates during the alleged conspiracy period, consistently operated outside of the landed rate system, and in fact set bids without first consulting with local agents regarding their prices.[19] There was also uncontradicted evidence that, regardless of the Sonthofen ...


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