Two whistleblowers represented by a Davis law firm will receive part of a $13 million settlement between the federal government and two shippers of military freight accused of submitting false and inflated claims.
Richard Ricks, 58, and Marcelo Cuellar, 30, jointly filed a complaint under the federal False Claims Act alleging that the defendants — Menlo Worldwide Government Services LLC and Estes Forwarding Worldwide LLC — knowingly billed the U.S. Department of Defense for air shipping when the freight was, in fact, delivered less expensively by truck.
Ricks is former president and chief executive officer of Menlo subcontractor EXP Logistics Solutions Inc., while Cuellar worked for Estes’ defense distribution depot in Tracy before his firing two years into the investigation.
“This case demonstrates the significance of having insiders willing to do the right thing,” said plaintiffs’ attorney Michael A. Hirst, a Davis attorney whose firm specializes in whistleblower lawsuits.
“Without the courageous help of these two whistleblowers, the government would never have learned of the inflated charges for shipments,” Hirst said.
The U.S. Attorney’s Office for the Eastern District of California in Sacramento investigated the case, which was resolved in an April 22 settlement agreement that was made public earlier this week.
Its allegations arose as a result of the Defense Transportation Coordination Initiative, a $1.635 billion contract intended to maximize efficiencies and cost savings by having one company manage all Department of Defense freight shipments within the continental United States.
Menlo was awarded the contract in August 2007, beating out other shipping companies including Federal Express and UPS.
The lawsuit alleges that Estes, a subcontractor of Menlo, defrauded the government on thousands of occasions by billing it for the costlier air shipping — including inflated air fuel surcharges — and by claiming certain freight to be oversized when in actuality it did not qualify as such.
For example, an oversized shipment from Los Angeles to Philadelphia in March 2012 cost Estes $599.70 to deliver by ground, but Menlo billed the government a $4,217.40 air shipment charge. The government did not have direct access to the subcontractors’ billing and shipping details, but rather relied upon Menlo for that information.
Ricks and Cuellar came forward with their allegations in 2013, and the Department of Defense removed all air shipments from the DTCI contract in 2015.
Under the settlement agreement, unsealed in U.S. District Court earlier this week, Menlo will pay $10 million to resolve the claims, while Estes will pay $3 million.
Of that, Ricks and Cuellar are poised to share 22 percent, or $2.86 million.
XPO Logistics Inc., which acquired Menlo in November, released a statement Tuesday saying the companies named in the lawsuit “strenuously denied that any wrongdoing occurred.”
“We are pleased with this settlement, which avoids the cost and distraction of litigation and provides clarity for our stakeholders,” said Gordon Devens, XPO’s chief legal officer. “While the work was performed years before we acquired the Menlo operations, we believe that Menlo and its subcontractors … provided their services in exemplary fashion, according to industry standards, commercial best practices and the terms of their contracts.”
Not resolved as part of the settlement are Cuellar’s claims that he was wrongfully terminated from Estes last year when his cooperation with the government was discovered during the fraud investigation.
“We will aggressively pursue Mr. Cuellar’s employment remedies under both federal and state law,” which could include double damages, Hirst said. “He blew the whistle, the public benefited, and he should not be punished for doing the right thing.”
— Reach Lauren Keene at lkeene@davisenterprise.net or 530-747-8048. Follow her on Twitter at @laurenkeene
