Navistar Settles Marine Corps Fraud Case For $50M

Posted May 27th, 2021.

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By Daniel Wilson

Law360 (May 27, 2021, 7:42 PM EDT) — Navistar Defense has agreed to a $50 million settlement to resolve claims it used fraudulent pricing data to drive up the price the U.S. Marine Corps paid for armored vehicle components, the U.S. Department of Justice said Thursday.

The settlement resolves False Claims Act allegations related to a 2010 contract modification to provide upgraded suspension systems for mine-resistant ambush protected vehicles, or MRAPs, where the pricing was supposed to be set based on Navistar’s commercial pricing, according to the DOJ’s announcement.

The company, a former subsidiary of truck and bus manufacturer Navistar International Corp. now majority-owned by Cerberus Capital Management after a 2018 deal, was asked to provide commercial sales information related to those parts so the Marines could determine whether its proposed prices were reasonable, the DOJ said, a common practice in federal contracting. Navistar International is also part of the settlement.

Rather than using actual commercial sales invoices, Navistar knowingly created fraudulent invoices based on sales that had never actually taken place, leading to the Marines paying inflated prices, the DOJ said.

“Money overcharged to the United States is money that should go to providing the very protection and security that we contracted to provide to our troops,” acting U.S. Attorney for the District of Columbia Channing Phillips said in a statement Thursday. “The settlement evidences our commitment to go after any contractor who treats America’s dedication to our troops as a get-rich-quick scheme at the expense of the taxpayer and the safety of our military personnel.”

Navistar Defense in a statement Thursday said it had agreed to the settlement “without any admission of wrongdoing or liability by our company because there was no wrongdoing; we do not believe the allegations were well founded in fact or law; we continue to expressly deny all of the 12-year old allegations in this matter; and we continue our unwavering commitment to compliance with all regulations and laws that apply to our business.”

The settlement stems from a whistleblower lawsuit filed in 2013 by Duquoin Burgess, a former government contracts manager for Navistar Defense, and also resolves Burgess’ other allegations.

Burgess alleged that Navistar had systematically overcharged the military between 2007 and 2012 under a multibillion-dollar contract to provide MRAPs, used in Iraq and Afghanistan, by using forged invoices and other false or misleading documents as part of negotiations.

Those false invoices listed inflated prices for a number of vehicle components, including chassis, engines and suspension systems, which either had no commercial sales history or were sold in the commercial market at a lower price than what Navistar had told the government, according to Burgess. The alleged overcharges amounted to $1.28 billion, he said.

The government partially intervened in the case in September 2019 to pursue the claims over upgraded MRAP suspension parts, which had been intended to help the vehicles drive on rockier terrain in Afghanistan, it said, and the case was unsealed in December that year. A tentative settlement was first proposed in November 2020.

As the relator, Burgess will receive an $11.6 million cut of the settlement, the DOJ said.

“Mr. Burgess showed enormous courage in bringing this fraud to the attention of the government,” his counsel Vincent McKnight, co-chair of Sanford Heisler Sharp LLP’s whistleblower practice, said in a statement Thursday. “This settlement reinforces the vital role that whistleblowers play in uncovering fraud.”

Sanford Heisler Sharp partner John McKnight, co-counsel for Burgess, said in addition to the “significant” $50 million monetary settlement, Navistar also agreed to provide nonprivileged documents to the government related to allegations in the case, describing that provision as a “novel and exciting settlement term.”

The government is represented by Gary Newkirk, Brandie Weddle, Jamie A. Yavelberg and Robert J. McAuliffe of the U.S. Department of Justice’s Civil Division and Darrell C. Valdez and Benton Peterson of the U.S. Attorney’s Office for the District of Columbia.

Burgess is represented by H. Vincent McKnight Jr., Kevin Sharp, John McKnight, Andrew Miller and Robert Van Someren Greve of Sanford Heisler Sharp LLP.

The Navistar companies are represented by Anne W. Robinson, David R. Hazelton and Sean M. Berkowitz of Latham & Watkins LLP.

The case is Burgess v. Navistar International LLC et al., case number 1:13-cv-01463, in the U.S. District Court for the District of Columbia.

–Editing by Stephen Berg.

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