Two Whistleblowers Awarded $2.86 Million for Information on DoD Shipping Fraud

Shipping-ContainersTwo whistleblowers brought fraud allegations against shippers of military freight and helped the U.S. Government recover $13 million in a False Claims Act settlement announced this month. The case involved a nationwide contract described by Transport Topics Newspaper as “the largest logistics outsourcing in history.”

Richard Ricks, 58, and Marcelo Cuellar, 30, filed a complaint under the federal False Claims Act, alleging that contractors under the Defense Transportation Coordination Initiative (“DTCI”) knowingly inflated charges to the Government for shipping military freight throughout the United States.

The Defense Transportation Coordination Initiative was a massive initiative by the U.S. Department of Defense (“DoD”) to manage distribution of military freight in the continental United States. The purpose of the DTCI was to “increase the operational effectiveness of the U.S. Military and at the same time, obtain efficiencies. The premise is that DoD will increase operational effectiveness… [and] also obtain efficiencies through best business practices such as increased consolidations and mode conversions.” In effect, the DTCI was an attempt to outsource and reduce transportation costs—a fact lost on the fraudulent contractors. In 2015, the program was abandoned because of rampant fraud.

The DTCI contract and regulations were apparently abundantly clear: unlike some commercial contracts, payments for shipment of freight under the DTCI depended on mode (i.e., air, truck, less than truckload) by which the freight is transported. Each mode has specified and pre-negotiated rates that contractors use to bill the government. The whistleblowers alleged that Defendants’ false charges for air shipments always exceeded the actual charges in their contracts for ground deliveries and even exceeded the negotiated maximum charges allowed for those shipments.

According to counsel for the plaintiffs, the shipping companies knowingly defrauded the Government by submitting false claims for air shipments when the freight was actually shipped by truck.  They also alleged that Defendants knowingly submitted inflated charges for air fuel instead of ground fuel, charges for oversized freight when the freight did not qualify as oversized, and overcharges for expedited shipments. Across the board, the subcontractors allegedly also had a pattern and practice of “rounding-up” mileage, which is illegal under the terms of the contract.

The Defendants also allegedly defrauded the government by knowingly failing to perform their contractual duties to audit, monitor, and coordinate freight shipments for the benefit of the government and to ensure that shipment charges are reasonable and appropriate. Menlo allegedly knew that their subcontractors were overcharging the government under the DTCI, and allowed that conduct to continue because they received and retained substantial payments, including bonus payments, to which the company knew it was not entitled.

Under the settlement agreement, XPO Logistics Worldwide, Inc., will pay $10 million to resolve the disputed fraud claims, and Estes Forwarding Worldwide LLC (Estes) will pay $3 million.

The Government acknowledged the important role played by the two whistleblowers by awarding them 22% of the settlement, or $2.86 million. A Government attorney acknowledged that, “Without the courageous help of these two whistleblowers, the Government might never have learned of the inflated charges for shipments.”

The complaint also alleges that two years into the investigation, Estes discovered Cuellar’s cooperation with the Government and immediately fired him.  That claim is not released by the settlement agreement.  Cuellar’s counsel said, “We will vigorously pursue Mr. Cuellar’s employment claims and we fully intend to obtain for him the double damages and other remedies provided to whistleblowers who are retaliated against under the False Claims Act.”

Unfortunately, illegal termination or retaliation from an employer committing fraud is a risk in filing a whistleblower lawsuit. If considering filing a False Claims Act suit, consult an experienced Whistleblower attorney before beginning the process to ensure your rights under the statute are protected.

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