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FedEx Whistleblower Suit Leads To Settlement – WUSA-9

WUSA-9 | Brittany Morehouse | May 4, 2011 | WATCH VIDEO

WASHINGTON (AP/WUSA) -- The Justice Department says FedEx Corp. will pay $8 million to settle allegations that company couriers falsely blamed increased security following the Sept. 11 terrorist attacks for delivery delays on packages to the government.

The department says the couriers' misuse of "delivery exception codes" blocked the government from seeking its money back on late-delivered packages. The Justice Department says the couriers used the codes even after tighter security was scaled back or became routine procedure for entering government buildings. A FedEx employee exposed what the couriers were doing in a lawsuit filed five years ago.

The settlement all started when a Crofton, Md. woman came forward with a lawsuit in 2006. Mary Garofolo had been working for FedEx for nearly two decades she said when she realized the company was hiding behind a "security delay code"excuse for late packages following Sept. 11.

"The rampant use of the codes allowed them to excuse late packages to the government and not honor their money back guarantee," said Julie Grohovsky, one of Garofolo's attorneys.

During a press conference on Wednesday, Garofolo said at first she was proud to explain to customers that the company took the country's security seriously.

"They used the security delay code as it was meant to be when 9-11 first happened but as time went on they started to abuse it," she explained at a news conference held at her attorneys' office building. "They started abusing their own policies and procedures until it became normal practice."

She said she wasn't even aware of the phrase "whistleblower" when she sought out an attorney, Joseph T. Mallon, Jr.

"I went to Mr. Mallon for another issue I had but I asked him was there any way he could stop them from doing this...I had no idea about False Claims Act or Whistleblower Act," she said.

Her case was filed under the False Claims Act which allows anybody to file a fraud claim on behalf of the government. Since most of those late packages were sent to government buildings, her case qualified. Last March, the Department of Justice took on the case.

Garofolo's attorneys said that the government intervenes with "only a small percentage of false claims act cases," said Shanlon Wu. "The fact that they did intervene in this one is evidence they took it seriously."

While the case has been in litigation for years, it was only this week when a court ordered the settlement agreement could be unsealed.

"They pulled $8 million out of their pocket for a reason because they didn't want to be on the hook for more," said Steven McCool, who also represented Garofolo.

A FedEx spokesperson emailed this statement to 9NEWS NOW:

"We determined it was in the best interest of the company to avoid a costly, protracted legal battle with the government. FedEx has worked hard to strike a balance between our customers' need for prompt deliveries and the government's need for the highest level of security.

In this case, the government did not identify one shipment where a security delay code had been applied and there wasn't a security delay."

Attorney Shanlon Wu Washington DC White Collar Criminal Defense Lawyer

Shan Wu is a former federal prosecutor whose law practice focuses on white-collar, criminal and student defense matters.  From 1999-2000, Shan served as Counsel to Attorney General Janet Reno, advising her on criminal and civil investigations, E-Gov, E-Commerce (electronic signatures, internet gambling, internet telephony, privacy & public access issues in electronic court filings), congressional oversight, and legislative review. His responsibilities included serving as liaison to the FBI, DEA, Criminal Division, Executive Office of United States Attorneys, National Institute of Justice, and White House Counsel’s Office.