U.S. Intervenes In Suit Against KBR And Panalpina Alleging Kickbacks And Overbilling Connected To Support In Iraq

Federal law permits whistleblowers to bring suit under the False Claims Act on their own. The law also allows the U.S. government to intervene in such cases – and when it does so, it typically suggests that the government believes there is some merit in the suit. 

The Justice Department has intervened in a whistleblower lawsuit against Kellogg Brown & Root (“KBR”), Panalpina Inc., and others that alleges that employees of two freight forwarders doing business with the companies provided unlawful kickbacks to KBR transportation department employees. KBR is the prime contractor under the Logistics Civil Augmentation Program (“LOGCAP III”) contract for logistical support of U.S. military operations in Iraq. The whistleblowers also allege overbilling by a KBR subcontractor in the Balkans, Wesco, under a military contract.
 
The U.S. is pursuing allegations that the two freight forwarders, Eagle Global Logistics (which has since merged with TNT Logistics and become CEVA) and Panalpina provided unlawful kickbacks in the form of meals, drinks, tickets to sports events, and golf outings to KBR employees. The government has indicated that it will seek damages and penalties under the FCA and common law, as well as penalties under the Anti-Kickback Act. The government has declined to intervene in the remaining allegations of the lawsuit.
 
The suit was filed initially in U.S. District Court for the Eastern District of Texas by David Vavra and Jerry Hyatt, who have been active in the air cargo business – the industry relevant to the case. The case is United States of America ex rel. Vavra, et al. v. Kellogg Brown & Root, Inc., et al., C.A. No. 1:04-CV-00042 (E.D. Tex.).
 
The U.S. previously intervened in and settled whistleblowers’ allegations that EGL included non-existent charges for war risk insurance in invoices to KBR for air shipments to Iraq, costs that KBR passed on to the Army. Two EGL employees pleaded guilty to related criminal charges. EGL paid the United States $4 million in the civil settlement.
 
The government also intervened in and settled whistleblowers’ allegations that EGL’s local agent in Kuwait, a company known as Al-Rashed, overcharged it for the rental (or demurrage) of shipping containers. The United States resolved potential claims arising from that matter against EGL for $300,000.
 
Finally, EGL paid the government $750,000 to settle the relators’ allegations that the company provided kickbacks to employees in KBR’s transportation department. Two former EGL employees pleaded guilty to related criminal charges in federal court.