Two whistleblower plaintiffs have appealed a federal court ruling that may allow a private security company to get away with defrauding taxpayers because of the bureaucratic fiction that the Coalition Provisional Authority (CPA) in Iraq was not a U.S. government entity.

A jury in March awarded $9 million in damages against Custer Battles LLC, finding that the company violated the False Claims Act by charging for work it never performed in Iraq. The award would be shared between the plaintiffs and the government.

In a ruling last month, U.S. District Judge T.S. Ellis, III said a Custer Battles insider and a subcontractor had “presented a significant amount of evidence tending to prove” that the company faked invoices to support a $3 million advance payment on a security contract awarded by the CPA during the first year of the Iraq occupation in 2003.

Nevertheless, he granted judgment as a matter of law to the defense and threw out the jury verdict because of insufficent evidence of “presentment.”

To be liable for a false claim, a contractor must “present” the claim to “an officer or employee of the United States government.” According to Ellis, evidence that Custer Battles' “invoices and records were presented to CPA employees, including members of the United States Armed Forces detailed to the CPA” did not satisfy that requirement.

"[A]lthough the CPA was principally controlled and funded by the U.S.," he said, "this degree of control did not rise to the level of exclusive control required to qualify as an instrumentality of the U.S. government."

Of course, those CPA employees from the military were still being paid by U.S. taxpayers. And the funding, staffing and operations of the CPA were all directly controlled by the Bush administration.

But Ellis somehow concluded in his opinion that the evidence “clearly establishes that [the CPA] was created through and governed by multinational consent.”

Custer Battles features prominently in “Blood Money,” a new book by T. Christian Miller about contractor fraud in Iraq. Unless the 4th U.S. Circuit Court of Appeals reverses, Ellis' ruling could be, as Miller puts it, “essentially a get-out-of-jail-free card for every contractor who signed up in the entire first year of the occupation.”

By Matthew Heller
9/22/06