After a bitter, 16-year fight with the Justice Department, Deerfield Beach pump maker MWI scored a big victory last week with a federal judge’s ruling that the company isn’t liable for any damages for its violations of the False Claims Act.
The reason: The government didn’t lose a penny on tens of millions of dollars in federal loans to Nigeria used to purchase irrigation pumps from MWI.
Attorneys for the Justice Department had at one point sought damages totaling $222.9 million – an amount that would have shut the company down and thrown approximately 130 employees out of work, according to an MWI attorney.
“The ruling is important not just for MWI and the fact that it will enable the company to stay in business and its employees to keep their jobs, but it shows the hubris of the government in pursuing these cases,” said District of Columbia attorney Robert T. Rhoad.
“The government pursued this case for 16 years, devoting an extraordinary amount of resources, when it knew the government hadn’t been harmed by any damages.”
NO DAMAGES, BUT CIVIL PENALTIES
Still, Judge Gladys Kessler of Washington, D.C. said MWI, short for Moving Water Industries, caused other harm and assessed $580,000 in civil penalties against the company. In November, a jury determined MWI had filed 58 false claims in paperwork submitted to secure a series of loans from the U.S. Export-Import Bank to finance its 1992 sale of irrigation pumps and other equipment to Nigeria.
“Despite the fraudulent actions taken by MWI to persuade the government to make these loans, they were in fact paid back in full with interest and fees,” Judge Kessler wrote in her 33-page order of February 10. “The government has been made completely whole.”
The government’s long-running civil action against MWI, one of Broward’s oldest companies founded in 1926 and still run by members of the Eller family, was the focus of media attention last year when former Gov. Jeb Bush was on the government’s witness list. Bush, a former business partner of MWI’s now retired chief executive/president David Eller, traveled to Africa twice while his father was in the White House to promote MWI.
Justice Department lawyers wanted to question Bush about his compensation. Bush, however, was not involved in the deal in question and Judge Kessler excluded him after deciding his testimony would be irrelevant.
Compensation paid by MWI to a Nigerian sales agent, Alhaji Mohammed Indimi, was a focal point of the trial.
The case began in 1998 when a former MWI employee named Robert Purcell filed a whistleblower claim alleging the company paid commissions in excess of 30 percent of the contract price to Indimi.
The total sale price was $82.2 million. The Export-Import Bank loaned Nigeria $74.3 million to finance the deal. Indimi was paid about $25 million.
Purcell, who stands to collect a cut of any damages, asserted that those commissions should have been disclosed on “credit supplier’s certificates” filed by MWI with the Export-Import Bank. The jury ultimately determined MWI did not disclose the commissions.
CRIMINAL PROBE WENT NOWHERE
The Justice Department initially conducted a criminal investigation, but found insufficient evidence to charge MWI or any of its officials with a crime. Instead, in 2002, it intervened on Purcell’s side in his False Claims Act case.
After years of little action, the case went to trial on November 6. The government argued its damages were the full amount of the loan, or $74.3 million. Three weeks later, however, the jury found MWI knowingly made 58 specific false claims and set the government’s damages at $7.5 million.
False Claims Act violators are liable for three times the amount of actual damages, or in this case $22.5 million. But the judge decided that MWI was entitled to an offset of $108 million – or $74.3 million in principal plus $33.7 million in interest and fees – paid to the Export-Import Bank for monies received from Nigeria as repayment of the loans.
“Thus, MWI owes nothing in damages,” Judge Kessler said.
Kessler went on to decide that MWI should pay the maximum civil penalty of $10,000 for each false claim. She justified that after finding evidence that then MWI President David Eller “had actual knowledge” that Indimi’s commissions “should have been disclosed.”
While Eller repeatedly told the court that MWI “would never have done anything wrong,” MWI employees testified that “Eller personally approved every commission MWI paid, including Indimi’s…Moreover, Eller testified that MWI never paid any other agent on any other combined project a total commission of more than $5 million,” the judge’s order says.
The judge also quoted the testimony of Juan Ponce, an MWI vice president of international sales, whom she called “a credible witness,” as evidence that MWI “deliberately withheld information about Indimi’s commissions from Ex-Im in order to acquire financing.”
“We knew that we were violating…the rules. We just hoped that we would never get caught,” Ponce said.
Kessler observed, “The harm to the government was more than monetary – it went to the integrity and purposes of the Ex-Im’s programmatic goals. Given that approximately a third of the total loan amount went to a single Nigerian individual, the goal of the Ex-Im to finance loans that primarily benefit U.S. exporters and workers was not achieved.”