Monthly Archives: June 2015

3C’s: Thomas Farmer Acquitted in Puerto Rico Shipping Price Fixing Trial

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After a three-week trial, Thomas Farmer, a former Crowley Liner Services Vice-President was acquitted of price-fixing and bid rigging charges by a jury in Puerto Rico. The trial was before Federal District Court Judge Daniel Dominguez. The jury was composed of six men and six women. They deliberated for three hours before returning their verdict. Framer had been indicted on March 21, 2013 on a charge of conspiracy to fix and rig Puerto Rico freight surcharges with counterparts from Horizon Lines and Sea Star Line in the U.S. mainland-Puerto Rico trade.

The acquittal marks the end of the Antitrust Division’s otherwise successful investigation into price-fixing on ocean shipping route between Puerto Rico and the United States. Farmer was the second executive to go to trial. Frank Peake, the former President of Sea Star, was convicted in 2013 on a similar charge (here). Peake’s case was noteworthy in that he was sentenced to five years in prison, a record sentence for a Sherman Act conviction (here). The Peake trial came after subordinates of his and co-conspirators from other companies had pled guilty and cooperated with the government. Peak’s direct subordinate at Sea Star, Peter Baci, was sentenced to 48 months in prison and fined $20,000. Peake’s counterpart at Horizon, Gabriel Serra, was sentenced to 34 months in prison. Other executives at Sea Star and Horizon had pled guilty, and received prison terms ranging from seven months to 29 months. Three companies have paid more than $46 million in fines for their involvement in a conspiracy that included setting rates, bid rigging and other practices.

Farmer faced a maximum sentence of ten years in prison. Farmer was represented by Joseph C. Laws, Melanie Matos Gilroy Cardona and Terrance Reed.  Farmer was facing a maximum of ten years in prison if convicted and his legal team deserves great credit for the best outcome Farmer could have hoped for.  But, there are great difficulties that the Antitrust Division faces in a “last man standing trial.”  I am not familiar with the specifics of the Farmer trial but some of these inherent difficulties are:

  • Staleness:  Farmer was indicted in March 2013.  The indictment charged a conspiracy: “From at least as early as mid-2005, to in or about April 2008.”  So, Farmer was indicted just before the five-year statute of limitations expired.  His trial did not begin until more than two years after indictment.  Farmer was tried in 2015 for conduct that ended in early 2008.  Antitrust violations do not “shock the conscience” the way a crime of violence might, and the long delay between conduct and trial can diminish whatever “jury appeal” a price-fixing case might have had.
  • Witness Fatigue:  When a witness signs a cooperation agreement with the Antitrust Division, he usually doesn’t realize that his cooperation may last longer than many marriages.  It can be difficult to work with a witness who has long since (hoped) he had put this chapter of his life behind him.  Witness prep so many years after the alleged conduct occured can involve an increasing frequency of “I’m not sure.  That was a really long time ago.”  And, in this case it was.
  • Prior Statements:  As I said, I have not read the record in the Farmer case so I do not know who the witnesses were.  But, there is a good chance some of the witnesses previously testified in the Peake trial.  So besides witness fatigue and faded recollections, defense attorneys have prior statements to work with on cross-examination.
  • The Weak Cases Are The Ones That Go To Trial:  It used to be fair to say that the Antitrust Division got plea agreements from those who they had the strongest cases against, but often found itself trying weaker cases, sometimes against senior managers that had insulated themselves from most of the illegal conduct.  But, my opinion is that today cases go to trial because the sentencing guidelines are so severe (based on volume of commerce) that the “last man standing,” who can’t get a 5K cooperation agreement/downward departure, has little to lose by going to trial.  Mr. Farmer went to trial because he declared he was innocent and a jury did in fact acquit him.  But, even a guilty party might go to trial because: (a) he has at least a chance at acquittal; (b) even if convicted at trial, he will likely be sentenced to less time than he could have negotiated with the Antitrust Division pursuant to a recommended guidelines plea agreement; and (c) in any event he can appeal and hope to get a conviction reversed on appeal.  In essence, the trial is an extended sentencing hearing, with a chance of acquittal, and even if convicted, a hope the conviction can be overturned.  I co-authored an article “A Peek Behind the Record Peake Sentence” (here) that explored some of these ideas.

Congratulations to Farmer’s defense team and also to the Antitrust Division for an otherwise very successful investigation.

Thanks for reading.

United Parcel Service Agrees to Settle Alleged Civil False Claims Act Violations

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United Parcel Service Inc. (UPS) has agreed to pay $25 million to resolve allegations that it submitted false claims to the federal government in connection with its delivery of Next Day Air overnight packages, the Justice Department announced today.  UPS is a package delivery company based in Atlanta.

“Protecting the federal procurement process from false claims is central to the mission of the Department of Justice,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “We will continue to ensure that when federal monies are used to purchase commercial services the government receives the prices and services to which it is entitled.”

“This conduct affected numerous federal agencies,” said U.S. Attorney Dana J. Boente of the Eastern District of Virginia.  “We place high importance on the integrity of companies that provide services to the government.  Combating all manners of fraud on the government is a high priority in the Eastern District of Virginia.”

UPS provides delivery services to hundreds of federal agencies through contracts with the U.S. General Services Administration (GSA) and U.S. Transportation Command, which provides support to Department of Defense agencies.  Under these contracts, UPS guaranteed delivery of packages by certain specified times the following day.  The settlement announced today resolves allegations that from 2004 to 2014, UPS engaged in practices that concealed its failure to comply with its delivery guarantees, thereby depriving federal customers of the ability to request refunds for the late delivery of packages.  In particular, the government alleged that UPS knowingly recorded inaccurate delivery times on packages to make it appear that the packages were delivered on time, applied inapplicable “exception codes” to excuse late delivery  (such as “security delay,” “customer not in,” or “business closed”), and provided inaccurate “on-time” performance data under the federal contracts.

“The United States should get what it pays for, nothing less,” said Acting Inspector General Robert C. Erickson of the GSA.

The civil settlement resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.  The civil lawsuit was filed in the Eastern District of Virginia by Robert K. Fulk, a former employee of UPS, who will receive $3.75 million.

The resolution in this matter was the result of a coordinated effort between the U.S. Attorney’s Office of the Eastern District of Virginia, the GSA Office of Inspector General (OIG), the Federal Deposit Insurance Corporation OIG, the Defense Criminal Investigative Service, and the Treasury Inspector General for Tax Administration and the Department of Treasury OIG, with assistance from the Department of Veterans Affairs OIG.

The lawsuit is captioned United States ex rel. Fulk v. United Parcel Service, Inc., et al., No. 1:11cv890 (E.D. Va.).  The claims resolved by this settlement are allegations only, and there has been no determination of liability.

New Orleans Jury Convicts Two Doctors, a Nurse and an Office Manager for Roles in $50 Million Fraud Scheme

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Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Kenneth A. Polite of the Eastern District of Louisiana, Special Agent in Charge Michael J. Anderson of the FBI’s New Orleans Field Office, Special Agent in Charge Mike Fields of the Department of Health and Human Services’ Office of the Inspector General (HHS-OIG) Dallas Regional Office and Louisiana Attorney General James D. “Buddy” Caldwell made the announcement.

Barbara Smith, M.D., 66, of Metairie, Louisiana; Roy Berkowitz, M.D., 69, of Slidell, Louisiana; Beverly Breaux, 67, of New Orleans; and Joe Ann Murthil, 57, of New Orleans, were convicted on all counts after a five-day jury trial before Chief U.S. District Court Judge Sarah S. Vance of the Eastern District of Louisiana.

Evidence introduced at trial showed that the defendants and others carried out a home health care fraud scheme in and around New Orleans through multiple companies over the course of more than 10 years.  Smith and Berkowitz falsely claimed that thousands of Medicare recipients were homebound and required nursing or therapy services to be provided in their homes.  Breaux was a registered nurse who falsely certified that these patients were homebound, and falsely claimed to have treated patients that she had not seen.  Murthil was an office manager and biller at one home health company who assisted with the payment of illegal kickbacks to patient recruiters.  Murthil also submitted false claims to Medicare stating that patients were homebound when some of these patients had jobs, had not received services or did not want services.  From 2007 through 2014, the companies in this scheme submitted more than $56 million in claims to Medicare, the vast majority of which were fraudulent.  Medicare paid approximately $50.7 million on these claims.

Sentencing for the defendants is scheduled for Aug. 26, 2015.  In total, 13 defendants have been charged for their roles in this scheme.  Nine other defendants previously pleaded guilty.

This case was investigated by the FBI, HHS-OIG and the Louisiana Attorney General’s Medicaid Fraud Control Unit, and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Eastern District of Louisiana.  This case was prosecuted by Trial Attorneys William Kanellis and Antonio Pozos and Assistant Chief Ben Curtis of the Criminal Division’s Fraud Section.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged nearly 2,100 defendants who have collectively billed the Medicare program for more than $6.5 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.