October 8, 1996 -- FMC Corp., a diversified manufacturing company that makes the Bradley Fighting Vehicle, has agreed to pay the federal government $13 million to settle a whistleblower case. It is the largest civil judgment that has ever been won in a government fraud case in northern California.
The lawsuit charged FMC deceived the government and deliberately inflated by millions of dollars costs for which it was entitled to be reimbursed by the U.S. Army. The deception increased the price tag for the Bradley Fighting Vehicle, an armored vehicle used in the Gulf War, which the government paid FMC $1.1 billion to produce from 1991 to 1994. The cost of other weapon systems that the Chicago-based corporation produced for the Pentagon also was affected.
Robert Neargarder, a mid-level manager in the company's Ground Systems division in San Jose, filed the lawsuit under the False Claims Act in April 1995 in U.S. District Court in San Jose. The False Claims Act allows private citizens to sue, on behalf of the federal government, companies that are defrauding taxpayers. Guilty defendants can be ordered to pay the government three times its losses plus penalties.
The law grants whistleblowers 15 percent to 30 percent of whatever money the government recovers to encourage people to report fraud. Neargarder will receive $2.86 million under the settlement.
"Without Robert Neargarder's assistance, the government probably never would have learned about this fraud, Neargarder's attorney. His law firm, Phillips & Cohen of Washington, D.C., and San Francisco, specializes in whistleblower cases.
Neargarder worked for 20 years in FMC's San Jose plant, where various ground-based weapons systems are manufactured. He helped in 1990 and 1991 to negotiate the amount of FMC's research and development costs that the Army would reimburse.
In his lawsuit, Neargarder charged that FMC inflated its estimates of research and development costs that it expected to incur as part of its Department of Defense work from 1990 to 1994. A percentage of those costs are tacked onto its contracts with the military for reimbursement. The Army used the inflated figures to reach a price to pay FMC for the Bradley Fighting Vehicle from 1991 to 1994.
After the negotiations between FMC and the Army neared completion in 1991, Neargarder learned that FMC had actually budgeted far less for research and development -- as shown in internal company documents -- than the figures that company officials gave him to present to the Army. For instance, FMC told the Army it had budgeted $30.6 million for research and development in 1991, when the company actually had budgeted $25 million and spent only $23 million. Similarly, FMC said it would spend $31.6 million for research and development in 1992; it actually spent $23 million.
Neargarder discussed the matter with senior company officials. But they refused to allow him to disclose the company's internal budget until after the $1.1 billion contract for the Bradley Fighting Vehicle had already been signed, and the price could not be adjusted.
Frustrated with FMC's response to his complaints, Neargarder reported his charges to the Department of Defense in 1992. At that time, he was unaware of the False Claims Act.
The matter still had not been resolved more then two years later. So he contacted Phillips & Cohen, who filed a lawsuit on his behalf. Within 18 months, the case had been settled. It had been under seal and not available to the public while the government investigated.
"Filing the False Claims Act lawsuit got the Justice Department in Washington and the Civil Division of the U.S. Attorneys office in San Francisco involved,". "They conducted an aggressive investigation, which produced a quick and very favorable settlement."
For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.
For more information, please see the following news stories :
- "FMC to pay $13 million in whistleblower settlement," Los Angeles Times, 10/9 / 96.
- "Whistleblowing hits chord; former FMC Corp. employee to receive $2.86 million in settlement," Vincent J. Schodolski, Chicago Tribune, 10/23/96.
- "FMC to pay $13m settlement," Barbara Starr, Jane's Defence Weekly, 10/16/96.
- "FMC Corp. settles government's suit on overpricing," Andy Pasztor, The Wall Street Journal, 10/9/96.
- "FMC to pay U.S. in Army contract dispute," New York Times, 10/9/96.
- "Defense contractor FMC to pay U.S. $13 million," Seth Rosenfeld, San Francisco Examiner, 10/9/96.
- "S.J. defense firm to pay $13 million," Harriet Chiang, San Francisco Chronicle, 10/9/96.
- "FMC pays $13 million to settle U.S. claims," Chicago Sun-Times, 10/9/96.
- "FMC to pay U.S. over suit," Janet Rae-Dupree, San Jose Mercury News, 10/9/96.