Defense Procurement Fraud Case

Joel Androphy, Sarah Frazier and Kathryn Nelson won a settlement with American Grocers in a qui tam action in United States District Court. The case involved the alteration of expiration dates on food products sent to American troops in the Middle East. The settlement netted the client and the government about $13.2 million. The settlement was reached more than five years after Delma Pallares’ lawsuit against American Grocers brought to light the illegal conduct.

Ms. Pallares, who rejected offers to be put in the witness Protection program, worked for American Grocers as a logistics manager and general merchandise manager from 1996 through 2003. American Grocers allegedly schemed to purchase aging or out-of-date food products, change the expiration dates, and then resell the more than $36 million in products to military contractors for consumption by U.S. troops. In one example described in the complaint, turkey products that had at the most a six-month shelf life were given instead a twelve-month shelf life. According to the allegations in the complaint, expiration dates were changed by eradicating expiration or “sell by” dates with acetone (an ingredient in nail polish remover), or with spray paint or a “Dremel” tool, and then imprinting new dates on the products with a machine designed for that purpose. So much acetone was housed at American Grocers, according to the complaint that its insurance company warned after an inspection that the acetone created a dangerous work environment and a fire hazard.

In addition, according to the complaint, much of the accompanying documentation, including health certificates, Halal certification, and invoices, was forged by American Grocers. Health certificates were forged because exports that contain meat or dairy products generally require certification that they are free of certain diseases, including rinderpest, foot-and-mouth disease, hog cholera, swine vesicular disease, African swine fever, bovine fever, bovine spongiform encephalopathy (“BSE” or “mad cow disease”), and contagious bovine pleuropneumonia. The fraudulent conduct also involved forging Halal certificates required by countries such as Saudi Arabia and Kuwait. Imports of food products into certain countries require certification that they meet appropriate requirements for Muslim religious slaughter. The complaint alleges that, instead of procuring proper certification, American Grocers obtained fake Halal certificates created by a sheik that never inspected the product. Further, the complaint alleges, American Grocers eventually bypassed even the sheik’s fees by duplicating the sheik’s certificate and forging Halal certification within his company.

In addition to this case, on July 21, 2009, the owner of American Grocers, Samir Itani, entered a plea of guilty to one count of conspiracy to defraud the U.S. Government with respect to claims (different from those asserted in Ms. Pallares’s complaint) in violation of 18 U.S.C. Section 286. In the Superseding Information to which Mr. Itani pleaded guilty, the U.S. Government alleged that Mr. Itani included overcharges in food product invoices to U.S. military contractors that were then passed along to the U.S. Government. These overcharges took the form of distribution fees and bogus trucking costs, which were concealed by inflated and fabricated invoices. On December 3, 2010, Mr. Itani was sentenced to 24 months’ confinement and fined $100,000.

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You should be aware that qui tam claims are subject to a Statute of Limitations. The area of limitations periods is complex. There are also first to file rules, public disclosure bars, original source issues, and varying limitations in pursuing retaliation claims. If you wish to pursue your claims, you should promptly seek the opinion of an attorney regarding the merits of your qui tam claim and the applicable statute of limitations.