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Government Challenges Damages Calculation in an Export-Import Bank Fraud Case

Loan-Application-199x300Moving Water Industries Corporation (“MWI”) has asked the D.C. Circuit to reverse a finding that it violated the False Claims Act in connection with its securing of $74.3 million in loans to fund Nigeria’s purchase of its pumping equipment. The violations were a result of the certifications made by the company to the U.S. Export-Import Bank that stated that MWI had only paid “regular commissions” in connection with the pump sales. In reality, however, MWI paid commissions exceeding 30% to its Nigerian sales agent. The company is now claiming that the trial court erred in finding that the Bank had provided fair notice of the government’s interpretation of “regular commissions.” On a cross appeal, the government is arguing that the trial court erred in finding that the borrowers repayment of the loans in an amount exceeding $22.5 million entirely discharged MWI’s liability for any damages.

MWI manufactures and sells pumping equipment for irrigation and drainage. In 1992, MWI arranged to sell irrigation pumps and other equipment to seven Nigerian states for a total of $82.2 million. To finance this sale, MWI and Nigeria applied to the Export-Import Bank, a federal entity whose mission includes facilitating the export of U.S. goods and services by providing loans and other types of financing to foreign purchasers of such goods and services. Accordingly, the Bank provided eight loans totaling $74.3 million. In order to approve these loans, the Bank required MWI to submit a “Letter of Credit Supplier’s Certificate” attesting that MWI had paid only “regular commissions” in connection with the financed sales. MWI submitted eight of these letters. After approving the loan but before each disbursement of funds, the Bank also required MWI to submit a “Disbursement Supplier’s Certificate” with the same attestation. MWI submitted 50 certificates as it drew down funds on the loans.

Relator Robert Purcell, a former MWI employee, originally filed a qui tam complaint against the company in 1998. The government elected to intervene and filed its complaint in intervention in 2002, alleging that MWI paid its Nigerian sales agent “excessive” commissions totaling over $25 million, which were “highly irregular to MWI’s own commission practices, as well as to normal and customary commissions.” The case ultimately went to trial in 2013, with the jury returning a verdict in favor of the federal government. MWI was held liable for $7.5 million in damages under the False Claims Act, and the damages were then trebled to $22.5 million pursuant to the Act. But the trial court subsequently concluded that all of Nigeria’s eventual repayment—totaling $108 million (including interest and fees) constituted a compensatory payment—despite MWI’s fraudulent securement of the loans. The trial court reasoned that “the entire amount paid by Nigeria [was] unquestionably related to the underlying false claims.” This repayment was thus deemed to have entirely offset the $22.5 million in damages that the company would have otherwise owed.

According to the government, Nigeria repaid only what it promised and only what would have been due to the government even if MWI had not committed fraud or the fraud had never been discovered. The government is also arguing that under no view of the jury verdict can MWI’s liability for treble damages be eliminated by the receipt of what it was due from Nigeria under the loan contract. To conclude otherwise conflicts with the compensatory and deterrent purposes of the Act’s treble damages provisions. Additionally, such an approach to compensatory offsets would make defendants’ liability vary widely based on third party actions and leave the Act’s damages provisions open to subversion by strategic behavior on the part of such defendants.

MWI contends that the Export-Import Bank promulgated an ambiguous term (“regular commissions”), chose not to define it, and failed to provide any notice of the interpretation that has since been ascribed to it. Regular commissions were defined in the litigation as “those commissions normally and typically paid to sales agents across the industry.” MWI argues, however, that “regular commissions” is susceptible to multiple interpretations and the Bank never defined the term on the supplier’s certificate or elsewhere, nor issued any authoritative guidance. The trial court nevertheless concluded that the term was in and of itself “sufficiently clear” to put MWI on notice of the government’s interpretation that the term meant commissions normally and typically paid to sales agents across the industry. On appeal, MWI maintains that it was an error to subject it to liability for failing to abide by an interpretation that was first announced during this lawsuit.