Trinity Appeals $663M FCA Guardrail Judgment to 5th Circuit Court

On December 7, 2016, the Fifth Circuit Court of Appeals heard argument in the case of The United States ex rel. Harman v. Trinity Industries, Inc., et al.  At issue was a nine-figure judgment which Joshua Harman obtained on behalf of the United States and other state governments against Trinity under the federal and related state False Claims Acts.  The jury found that Trinity had submitted knowingly false claims for payment for its highway guardrail products.  The falsity stemmed from the fact that Trinity had made changes to its guardrail product in order to save money but consciously concealed those changes from the Federal Highway Administration, thereby rendering the products ineligible for payment.

Trinity has appealed from the judgment, claiming that the changes to the guardrail were immaterial to the government's payment decisions.  Trinity claims that even after the government knew of the changes, it continued to pay for the product.  Trinity also obtained a letter issued by the FHWA after the judgment, which stated that despite the design changes, the product has always been eligible for payment.

Trinity wants the Fifth Circuit to overturn the judgment based on that evidence and the Supreme Court's statement in a recent False Claims Act case:

[if] the Govern­ment pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particu­lar type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the re­quirements are not material.

Universal Health Services, Inc. v. United States ex rel. Escobar (June 16, 2016).  Trinity asks the Fifth Circuit to overturn the jury verdict or order a new trial based on the claim that its concealment was not material.

While it is difficult for an outside observer to discern the underlying truth about what happened, some important considerations in this appeal may have been understated by the parties and the Court.  Specifically, neither the briefing nor the questions at oral argument placed much focus on the instructions given to the jury.  But these instructions are critical to understanding the result in the lower court.  On the issue of materiality, the Court instructed the jury as follows:

In order to prevail on his False Claims Act claim, the Plaintiff must show by a preponderance of the evidence with regard to the [guardrail] units at issue that the Defendants knowingly made, used, or caused to be made or used a false record or statement material to the false or fraudulent claim.

A record or statement is material to a claim if it has a natural tendency to influence or is capable of influencing the making of a payment by the United States Government.

Defendants claim that before the Plaintiff brought this lawsuit under the False Claim Act, the United States Government, through various employees of the Federal Highway Administration, already knew about the facts relating to the statements, records, or claims that the Plaintiffs allege were false concerning the [guardrail] system.

In considering whether Defendants knowingly made or caused to be made any false statement or record material to a false or fraudulent claim, you must consider all direct and circumstantial evidence concerning whether one or more United States Government employees, with authority to act, knew all of the relevant facts concerning the approval of the [guardrail] system.

In other words, if you find that the United States Government employees with authority to act knew all of the relevant facts, then you may consider that fact in determining whether the Defendants submitted a false statement or record that was material to a false or fraudulent claim.

These instructions gave the jury the entire context for Trinity's materiality defense.  They asked the jury to consider if the changes had been disclosed up front, whether it would have influenced the government's decision to pay for a guardrail.  The jury heard evidence from Harman that Trinity made a conscious decision not to tell the government about the changes to the guardrail product.  Notably, Trinity does not contest on appeal the sufficiency of evidence to prove that Trinity knew it should have sought approval of the changes and that it purposely failed to do so.  According to Trinity, this evidence goes to Trinity's scienter – its "knowledge" that its claim was false in some respect.  What Trinity disputes is the evidence that the false claim was "material" – that it mattered to the government's payment decision.

What Trinity has failed to recognize is that the evidence of how it consciously decided not to disclose and seek approval for the changes addressed not only scienter, but materiality.  The jury was entitled to conclude that people do not consciously bother to conceal information if it is not material.  Why risk a lie over something that does not matter.  Apparently, the jury weighed this evidence of Trinity's conscious omission against Trinity's evidence that the government ultimately learned of the changes and paid Trinity anyway.  They then applied the Court's instruction about the materiality requirement and determined that how Trinity acted at the time it made the changes (i.e. its conscious concealment) was more probative of materiality than how the government responded after the fact.  That conclusion was within the province of the jury.  No party contested on appeal that the jury was given an improper instruction on materiality.

Trinity wants the Fifth Circuit to hold that the government is, in all cases, the dispositive arbiter of materiality, and once a government witness declares a fact "immaterial," all other evidence becomes irrelevant.  But that is not the law, and it is not how our judicial system works.  No single person's testimony about what is material warrants complete deference, even if that witness is an agent of the government.  Thus, given the clear instruction on materiality, the Court must assume that the jury considered all of the evidence addressing materiality and respect its conclusion.

Of course, the jury did not consider evidence of the official FHWA letter that was created after the trial.  We do not know whether the jury would have believed the FHWA's after-the-fact pronouncement.  On the one hand, an official agency pronouncement on materiality would likely carry more weight than the statement of one agency employee.  On the other hand, an official agency declaration about what is material, coming well after the discovery of purposeful concealment, should carry less weight than a statement by the agency to the contractor, during the contract's implementation, that the agency discovered the design change and determined it was not significant.  Given that the FHWA letter was not created until after the trial was over, the Fifth Circuit will have to decide whether this letter is the sort of newly discovered evidence that justifies a new trial.  If so, such evidence would have to be vetted further under a new discovery process.