Big news for Dallas-based Trinity Industries came down late last month when a three-judge panel from the U.S. 5th Circuit Court of Appeals unanimously reversed and rendered, throwing out a $663.3 million adverse judgment. This case presented the odd situation where a plaintiff and jury said the government was defrauded, but the government wanted no part of it.
Like a lot of appeals court rulings, the final decision is focused more on the law’s intent rather than what the plaintiff alleged.
The original 2014 verdict followed an earlier mistrial and three years of contentious litigation in the U.S. District Court for the Eastern District of Texas in Marshall. The lawsuit was filed under the federal False Claims Act by a man who owned a company that competed against Trinity. The False Claims Act allows individuals to file lawsuits aimed at protecting the government from fraud. Often, the government will join such cases as a plaintiff, but not always.
The plaintiff accused Trinity of defrauding the federal government by not disclosing a redesign in its ET-Plus guardrail system that was sold under federally subsidized state contracts. Jurors heard one week of testimony before slapping Trinity with a $175 million verdict that climbed to more than $663 million in the final judgment after the addition of penalties and attorney fees.
Trinity appealed, noting that the government never said there was anything wrong with the company’s guardrails as it continued to buy them. Notably, the Federal Highway Administration decided not to join the lawsuit as a plaintiff and instead issued an official memorandum during the trial expressing its continued confidence in the ET-Plus system.
On September 29, the 5th Circuit panel ruled in Trinity’s favor by reversing the earlier judgment and dismissing all claims against the company. Considering that Trinity didn’t tell the Federal Highway Administration about modifying its guardrail system and later made millions and millions of dollars selling the same system, you might ask, “So why didn’t Trinity lose on appeal?”
The answer, according to the unanimous three-judge panel, boiled down to a question of materiality.
The 5th Circuit noted that even though the plaintiff and the East Texas jury may have believed the government was defrauded, the government’s actions painted a much different picture.
“When the government, at appropriate levels, repeatedly concludes that it has not been defrauded, it is not forgiving a found fraud— rather it is concluding that there was no fraud at all,” the court concluded.
While some will argue that the ruling ignored the jury’s decision, the 5th Circuit’s reasoning no doubt will be relied upon by future defendants in False Claims Act cases until or unless this issue reaches the U.S. Supreme Court.