(CN) – Custer Battles must face a multimillion-dollar lawsuit accusing the mercenary group of fraudulently billing the U.S. government for its “risk-management” services in Iraq, the 4th Circuit ruled.
The court partially revived a false claims action over Custer Battles’ 2003 contract to provide security services during the construction of currency-exchange hubs. The Coalition Provisional Authority had decided to exchange the Iraqi dinar, which bore the portrait of deposed ruler Saddam Hussein, with a new dinar that didn’t include his image.
The coalition gave Custer Battles a $3 million advance on the contract, paid for with a U.S. Treasury check that drew from the $210 million confiscated by the United States from Iraqi bank accounts.
Custer Battles was hired on a “cost-plus” basis, meaning it would be reimbursed for its actual expenses, plus 25 percent to cover overhead and generate a profit.
Problems with the quality of its services prompted a meeting between co-owners Michael Battles and Scott Custer, and coalition representatives and the U.S. military.
Battles accidentally left behind an “astonishing spreadsheet,” according to Judge Niemeyer.
The sheet listed the actual cost and amount billed for many of its services. For example, Custer Battles provided two flatbed trucks for which it paid $18,000, but charged $80,000. It billed the coalition authority $400,000 for life-support generators that cost $74,000, and invoiced $12,000 for laundry services that cost $4,000.
DRC Inc. and others sued on behalf of the government, claiming Custer Battles violated the False Claims Act on the dinar-exchange contract and an airport security contract.
U.S. District Judge T.S. Ellis III limited their fraud claim over the first contract to $3 million – the advance paid with a Treasury check.
Although a jury found Custer Battles liable for fraud, Ellis ruled for the defendant on the ground that there wasn’t enough evidence showing that Custer Battles had presented fraudulent invoices to an officer or employee of the U.S. government or military, as required by the Act.
Ellis dismissed all claims over the airport contract.
The federal appeals court in Richmond, Va., affirmed summary judgment for Custer Battles on the airport contract, but reinstated the claims relating to the dinar-exchange contract and reversed the order limiting them to $30 million.
“[W]e conclude that the district court erred in assuming that U.S. government personnel detailed to the Coalition Authority could not be working in their official capacities as U.S. government employees,” Judge Niemeyer wrote.
“In this case, the relators introduced ample evidence to show that the fraudulently inflated invoices were presented to U.S. government employees or officials who were acting in their official capacities.”
The coalition authority was a temporary ruling body created by a U.S. general and staffed mostly by U.S. personnel. It governed Iraq from May 2003 to June 2004.