Law360, New York (May 03, 2011, 8:26 PM ET) -- FedEx Corp. reached an $8 million settlement Tuesday in a False Claims Act suit in Washington that accused the company of fraudulently blaming shipping delays on heightened security measures implemented after the terrorist attacks of Sept. 11, 2001.
The company improperly cited the security-related delays in an effort to avoid reimbursing the government for late packages under the company's moneyback guarantee, according to U.S. Attorney Ronald C. Machen Jr.
“Companies that commit to provide services to the United States are expected to meet their commitment and not ‘game the system’ to take advantage of their government customers for the benefit of their own bottom line,” Machen said. “This office takes seriously its responsibility to protect the public and to recover funds that were obtained through misrepresentations, fraud and abuse.”
The whistleblower, FedEx employee Mary Garofolo, observed couriers using so-called delivery exception codes to excuse their failure to deliver priority overnight packages by 10:30 a.m., even after security measures relaxed or became routine, according to Machen. Garofolo filed her suit in the District of Columbia's federal court in 2006, saying the invoices with the delivery exception codes were false claims for payment under the FCA, subject to trebled damages.
Garofolo will receive $1.44 million in the settlement, Machen said.
Garofolo, who was a FedEx employee from 1984 until 2007, said she'd been proud to work for the company until she witnessed management forcing drivers to enter the fraudulent codes for entire trucks.
"I could no longer sit by and watch FedEx abuse their own policy and procedures to profit off of 9/11," Garofolo said. "The fact that FedEx profited off of tragic events tied to 9/11 is horrific."
After the U.S. intervened in the suit, the allegations were investigated by the U.S. attorney’s office and the inspectors general for the U.S. Department of Justice, the General Services Administration and the U.S. Department of Agriculture. The Naval Criminal Investigative Service provided assistance as well, Machen said.
The DOJ and GSA joined Machen in saying that the government must be vigilant against fraud and abuse.
“We cannot let companies cheat the government by failing to live up to their contractual responsibilities and concealing their improper conduct,” GSA inspector general Brian D. Miller said.
Machen said that the settlement would be publicly available, although court documents were still sealed late Tuesday.
A representative for FedEx could not immediately be reached for comment Tuesday.
Garofolo was represented by Mallon & McCool LLC and Wu Grohovsky & Whipple PLLC.
Counsel information for FedEx was not available.
The case is U.S. ex rel. Garofolo v. Federal Express Corp. et al., case number 06-cv-0815, in the U.S. District Court for the District of Columbia.
--Editing by Greg Ryan.