Texas Court Issues Defense Verdict in False Claims Action

A manufacturer of highway guard rail end terminals faced allegations of violating the False Claims Act in a qui tam action filed in the U.S. District Court for the Eastern District of Texas. The case centered on the defendant's Trinity ET-Plus guard rail, a safety device designed to prevent guard rails from spearing or folding into vehicles upon impact, which required Federal Highway Administration (FHWA) certification for states to receive federal reimbursement for installation. The relator, owner of a competing company, asserted that the defendant secretly modified the ET-Plus design in 2005 by reducing the width of a component, which allegedly led to device failure, vehicle impalement, and severe injuries.

The relator argued the defendant made the modification to save $2 per unit, totaling approximately $50,000 annually, and presented an internal email supporting this claim. The plaintiff sought $218 million in damages. The defendant countered that the government was aware of the 2005 modification and had retroactively approved the modified design for reimbursement. A defense expert testified the modification was not significant enough to necessitate additional testing or reporting to the FHWA.

The case first went to trial in July 2014 but resulted in a mistrial. A second trial in October 2014 concluded with a jury finding for the plaintiff, awarding $175 million in damages. Under the False Claims Act, these damages were automatically trebled to $525 million. The judge added $138 million in penalties, bringing the total judgment to $663 million.

The defendant appealed the decision to the U.S. Court of Appeals for the Fifth Circuit in New Orleans, disputing the damages and fraud claim on materiality grounds. In September 2017, the appellate court overturned the lower court's judgment. The court ruled that the U.S. Government had never declared the challenged design unsafe and had paid to install the guardrails while declining to remove them. The Fifth Circuit accordingly reversed the Texas court's judgment, rendering judgment as a matter of law in favor of the defendant.