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United States v. Mercer Transportation Co. Inc.

United States District Court, M.D. Georgia, Albany Division

April 28, 2017

UNITED STATES OF AMERICA, ex rel. JAMES E. REEVES,
v.
MERCER TRANSPORTATION COMPANY, INC., Defendant.

          ORDER

          LESLIE J. ABRAMS, UNITED STATES DISTRICT COURT JUDGE

         Before the Court is Defendant's Motion to Dismiss for Failure to State a Claim (Doc. 32). For the reasons that follow, Defendant's Motion to Dismiss (Doc. 32) is GRANTED in part and DENIED in part. The Government's claims for unjust enrichment and payment by mistake are dismissed. All other claims remain.

         BACKGROUND

         Relator James E. Reeves initiated this action on June 27, 2013. (Doc. 1). The United States of America elected to intervene in this matter on July 25, 2016 (Doc. 21), and filed its Complaint on October 31, 2016 (Doc. 24). Therein, the United States alleges that Defendant Mercer Transportation Company, Inc. committed violations of the False Claims Act (“FCA”), 31 U.S.C. § 3729, as well as inducement of breach of fiduciary duty, fraud, unjust enrichment, and payment by mistake in violation of Georgia state law. Id. at ¶¶ 128-153.

         I. Military Freight Transportation

         Defendant Mercer Transportation Company, Inc. (“Mercer”) is a trucking company that provides transportation services to both commercial and government customers, including the Marine Corps Logistics Base (“MCLB”) in Albany, Georgia. Id. at ¶ 2. MCLB's principal mission is to rebuild and repair ground combat and combat-support equipment and to support military installations throughout the United States. Id. at ¶ 26. The Defense Logistics Agency (the “Agency”) manages the re-utilization of military equipment as well as supply distribution, and coordinates the transportation of these items to and from military bases around the world. Id. at ¶ 27. The Agency maintains a presence on MCLB. Id. at ¶ 28. The Agency Traffic Office at MCLB planned, arranged, and coordinated the shipment of all sensitive freight material that required transportation protective services, including arms, ammunition, explosives, and classified and controlled cryptographic items. Id. at ¶ 29. Mercer drivers David Nelson, J.M., and M.H. were authorized by the Department of Defense (“DOD”) to transport sensitive freight. Id.

         Transportation Service Providers (“Service Providers”), such as Mercer, enter into contracts with DOD to transport shipments via the Global Freight Management System (“GFMS”). Id. at ¶ 32. Service Providers submit standing offers, known as tenders, to the GFMS for specific categories of shipments they are capable of carrying. Id. When MCLB has a load ready for shipment, an Agency employee is supposed to enter the required shipment details into the GFMS, and the GFMS dispenses a list of Service Providers that have submitted tenders matching the specific parameters required for that shipment. Id. at ¶ 34. The list of Service Providers is arranged according to price, and using the “best value” approach required by DOD, the Agency official is expected to move down the list from least to most expensive and select the first available Service Provider. Id. at ¶¶ 33-34.

         Once a Service Provider is selected, a Government Bill of Lading is generated based on the Service Provider's tender. Id. at ¶ 35. When the driver arrives at his destination site, the goods are inspected by a government employee; and the driver confirms delivery with the Service Provider. Id. at ¶ 37. The Service Provider then confirms delivery in the Third Party Payor System, and the third party payor with which the United States has contracted to administer payments pays the Service Provider the amount listed in the bill of lading on behalf of the United States. Id. The United States' money is transmitted to the Service Provider through the Third Party Payor System. Id.

         II. The Bribery Scheme

         As part of the bribery scheme, Mercer agents and employees Ivan Brannan, David Nelson, J.M., and M.H.[1] bribed DOD employees Mitchell Potts and Jeffrey Philpot to award sensitive freight shipments to Mercer. Id. at ¶¶ 3, 4, 11, 12, 15. According to Potts and Philpot, Mercer would not have otherwise received the contracts for those shipments. Id. at ¶ 4. Also under the scheme, the parties conspired to inflate the shipping costs. Id.

         Brannan was an agent of Mercer with the authority to bid on and accept sensitive freight shipments out of MCLB. Id. at ¶ 12, 36. Mercer had actual knowledge of and accepted all awards of sensitive freight shipments out of MCLB. Id. at ¶ 39. Mitchell Potts and Jeffrey Philpot were members of the Agency Traffic Office and had the responsibility for awarding sensitive freight shipments to Service Providers. Id. at ¶ 30.

         When a shipment for non-sensitive freight was awarded to Mercer, Brannan entered the shipment documentation directly into Mercer's computer system. Id. at ¶ 44. When a sensitive freight shipment was awarded to Mercer, the shipment information was placed in a separate queue accessible only by a special committee of Mercer's managers, the Truck Operations Managers (“TOM”). Id. at ¶¶ 44-45. This committee, which included Jack Lubay, handled specific transportation related issued in close coordination with John Fallot. Id. at ¶¶ 44-45. After the information was placed in the special queue, the TOM would assign sensitive freight shipments to particular drivers who met the security requirements applicable to that shipment. Id. at ¶ 48. Fallot serves as Mercer's General Manager of Branch Offices and Business Development and is one of five general managers at Mercer with significant authority and responsibility over the day-to-day management of the company. Id. at ¶ 47. Lubay is Mercer's Manager of Government Operations, and reports directly to Fallot. Id. at ¶ 46.

         Potts, Philpot, Brannan, and Nelson have all pled guilty to their role in the bribery scheme. Id. at ¶¶ 9-16. As part of the factual basis for his guilty plea, Brannan admitted to mailing cash gifts, providing cruise tickets, planning a hunting trip, and regularly purchasing meals for Potts in exchange for Potts continuing to award sensitive freight shipments out of MCLB to Mercer. Id. at ¶¶ 55-57, 61, 94. Philpot received cash payments for his role in the scheme. Id. at ¶ 58-59, 90. Brannan admitted to directing Nelson to make cash payments to Potts and Philpot when Nelson picked up loads awarded to Mercer from MCLB. Id. at ¶ 58-59. As a part of the factual basis for his guilty plea, Nelson admitted that he paid Potts between $500 and $1, 500 per shipment awarded to Mercer. Id. at ¶ 60. In at least one instance, the vacation expenses for Potts were listed on Mercer's Expense Report as “Entertainment Expenses” for “Mitchell Potts-MCLB.” Id. at ¶ 62.

         Brannan also admitted that Mercer would not have been awarded the subject contracts without the bribes. Id. at ¶ 56. Potts and Philpot admitted that they awarded the shipments to Mercer because of the bribes. Id. at ¶ 80. In the factual basis for his guilty plea, Potts admitted that he accepted bribes from Nelson, J.M., M.H., and Brannan in exchange for awarding shipments leaving from MCLB. Id. at ¶¶ 86-87. After Potts was promoted, Philpot admitted that he began accepting bribes in exchange for awarding shipments to Mercer. Id. at ¶ 90.

         Beginning in 2007, several Mercer drivers complained about the favorable treatment received by Nelson, J.M., and M.H. Id. at ¶ 64. In response to these complaints, Mercer established a Dedicated Driver Program. Id. at ¶ 66. Under this program, all sensitive freight loads were to be assigned by the TOM to one of the drivers in the program before any others were considered. Id. at ¶ 69-70. The drivers in the program included Nelson, J.M., and M.H. Id. at ¶ 66. The creation of the program allowed Mercer to continue bribing Potts and Philpot with less suspicion. Id. at ¶ 69-70. Despite continued complaints to Mercer of suspicions of bribery and favorable treatment, Mercer continued the Dedicated Driver Program without investigation. Id. at ¶ 74-76.

         From October 2006, to April 2012, a total of 1, 333 Government Bills of Lading were awarded to Mercer as a result of the bribery scheme. Id. at ¶ 100. During this time, Mercer drivers Nelson, J.M., and M.H hauled numerous sensitive freight loads from MCLB in which multiple bills of lading were used to contract for the transportation of goods on one truck by one driver, instead of using one bill of lading with multiple stop-offs. Id. at ¶¶ 63, 100. The use of multiple bills of lading rather than a single bill of lading with multiple stop-offs resulted in higher costs for the government. Id. at ¶ 63. Nelson stipulated in the factual basis for his guilty plea that the loads resulting from the bribes involved multiple bills of lading shipped on a single truck and that the planning of shipments in this manner led to substantial profits for Mercer, Brannan, and Nelson. Id. at ¶ 98. For example, on October 7, 2011, Nelson arrived at MCLB with one trailer, which he proceeded to load with deliveries under four separate bills of lading. Id. at ¶ 102. Three of the delivery locations were in California, and the fourth was in Nevada. Id. By using four bills of lading instead of one bill of lading with stop-off charges, Mercer received payment for mileage for four cross-country shipments, instead of mileage for one cross-country trip, plus the mileage for the additional stops. Id. at ¶¶ 103-104. As a result, Mercer was paid $26, 562.88 instead of $7, 084.23. Id. at ¶105.

         The Government alleges that: Nelson transported the loads contained in 333 bills of lading in this manner, J.M transported the loads contained in 439 bills of lading in this manner, and M.H. transported the loads contained in 361 bills of lading in this manner. Id. at ¶¶ 101-127. The Government also attached to the complaint a list of all affected bills of lading transported by each driver that includes the Government Bill of Lading number, the pickup date, the drop-off date, the Third Party Payor System transaction identification number, and the billed total. (Docs. 24-1; 24-2; 24-3).

         In 2006, before the bribery scheme was fully implemented, Mercer was paid approximately $278, 652 for shipments arising out of MCLB. (Doc. 24, ¶ 81). In 2007, however, the total payments jumped to $6, 500, 000. Id. Between 2007 and 2012, Mercer was paid approximately $23, 000, 000 from shipments arising from MCLB. In 2013, after Potts and Philpot were terminated, the total payments drastically decreased to $218, 000. Id.

         LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b)(6) allows a party to assert the defense of failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss under Rule 12(b)(6), the complaint must plead enough facts to state a claim for relief that is plausible-not just conceivable-on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Restated, “the factual allegations in the complaint must possess enough heft to set forth a plausible entitlement to relief.” Edwards v. Prime, Inc., 602 F.3d 1276, 1291 (11th Cir. 2010) (internal citation and punctuation marks omitted).

         On a motion to dismiss, the Court “construes the complaint in the light most favorable to the plaintiff and accepts all well-pled facts alleged [] in the complaint as true.” Sinaltrainal v.Coca-Cola Co., 578 F.3d 1252, 1260 (11th Cir. 2009), abrogated on other grounds by Mohamad v. Palestinian Auth., 132 S.Ct. 1702 (2012). The “tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While notice pleading is a liberal standard, “it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Id. at 678-79. A “plaintiff's obligations to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (internal citations omitted). Moreover, when evaluating the sufficiency of a complaint, the Court must “make reasonable inferences in plaintiff's ...


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