Company certain to appeal
WASHINGTON — In a case that could trigger a wholesale re-evaluation of the safety of a guardrail system used on highways and interstates across the country, a federal jury in Marshall, Texas found against Dallas-based Trinity Industries Monday, finding that the company knowingly defrauded the government of $175 million since 2005.
Brian Farber, spokesman for the Federal Highway Administration, said Monday’s ruling has triggered a review of whether federal funds can be used to continue buying the guardrail component sold by Trinity, and that a safety review prompted by recent concerns about its performance continues as well.
“The Federal Highway Administration will evaluate the findings of the Trinity case and consider whether it affects the continued eligibility of the ET-Plus,” said Farber, using the brand name for the guardrail cap sold by Trinity. “Separately, the FHWA continues to review the Trinity guardrail service record. We have asked all states to immediately share any crash information involving the Trinity ET-Plus guardrail end terminal. To be clear, our number one priority is safety and we will take a data-driven approach to ensure safety on our highways.”
The actual amount Trinity could owe is much higher. The federal False Claims Act, the statute under which whistle-blower Josh Harman brought his suit, states that a guilty party will pay three times whatever damages are proved at trial, plus in many cases attorneys fees and additional fines that Harman’s lawyers say could top $200 million.
That could total nearly $1 billion for Trinity, a $4.4 billion a year company best known for making rail cars, and its much smaller highway products subsidiary. Under law, Harman, since he brought the case without the help of the U.S. government, stands to win one-third of the total damages. Attorneys fees for his lawyers, Boies Schliller and Flexner, are “in the millions” and could top $10 million, an attorney with the firm said.
The actual amount that Trinity will be ordered to pay — including how much in lawyers’ fees — will be up to U.S. District Judge Rodney Gillstrap. He’s clashed with both sides during the stormy months leading up to this month’s trial, but especially with the defense in recent months. A trial began last summer, but ended in a mistrial.
Whatever Gillstrap decides, the company is certain to appeal. Its stock price dropped by 12.3 percent Monday, to $31.63. It’s 12-month high was $50.30 on Sept. 19. I’ve left a message for company spokesman Greg Todd, who has not yet responded with a statement about Monday’s verdict.
The appeal is likely to take years. The number of pretrial motions was extraordinary, and many of them files precisely to create a record upon which the losing party could challenge the verdict and the judge’s pretrial decisions.
The product at the center of the case is called ET-Plus and was designed by Texas A&M University engineers at the Texas Transportation Institute. The energy-absorbing cap is placed on the ends of highway guardrail segments so that the rails collapse away from an oncoming vehicle during a crash. State highway departments all over the country, including in Texas, have used the rails for years. Because most interstate highway construction is paid for by federal funds, these departments routinely sought reimbursement from the FHWA for purchases of the ET-Plus.
Harman, a former competitor of Trinity’s who settled claims that he infringed on its patents, has traveled the country in the past few years visiting crash sites. He alleges that the small changes made by Trinity in 2005 have rendered the guard rails much more dangerous.
That issue–whether Trinity’s changes made the guardrails more dangerous–was not on trial. There are several tort cases brought by crash survivors or the families of victims who have sued Trinity, but those claims were not before the jury in Marshall.
Instead, the seven jurors there were asked a simpler question: Were the changes that Trinity didn’t tell the FHWA about serious enough to mean that the government had paid for something it never actually received. The jury answered ‘yes’ to that question, concluding that Trinity “knowingly made, used or caused to be made or used a false record or statement material to a false or fraudulent claim.”
Karen Dyer of Boies Schiller and Flexner, one of five attorneys who argued the case for Harman, said in her view the evidence that had the strongest impact on the jury was an 2004 email that showed Trinity executives had concluded the change would save the company money, and suggested that they had purposely not told the FHWA about the change.
The jury’s verdict had been hard to anticipate, because throughout the three years of litigation, the FHWA itself has repeatedly sided with Trinity. That’s one reason why, if the jury award holds up, Harman stands to be paid so much as a whistle-blower. The FHWA has called Trinity’s omission “inadvertent.” It also has answered a growing number of nervous questions from state transportation departments by saying that it remains appropriate to use federal money to buy the ET-Plus.
But on Oct. 10, the agency responded to continuing concerns by state officials and issued a new memo. It asks all DOTs to continue monitoring the performance of guardrails equipped with Trinity’s product, and to send FHWA any information about safety problems. It noted that two states — Massachusetts and Missouri — have decided on their own to suspend the use of the ET-Plus.