For these sizeable contractors, a settlement of several million dollars generally isn’t damaging to stock prices, but analysts said the companies are focused on defending their record.
“Reputation means a lot in the government-services sector. . . . If you get a black eye for ethical reasons, it can really kill your business,” said Loren Thompson, a defense industry consultant. “When a company is accused of wrongdoing and fails to contest the charge, that sends a bad signal.”
Engility, which is a new government-services business spun off by L-3 Communications, paid $5.28 million last year in the settlement with the former inmates. The suit was originally filed against a company known as Titan, which was bought by L-3 and then included in the Engility spinoff. L-3 and Engility declined to comment for this report.
“We think this is the first positive resolution for Iraqi torture victims, and we’re hopeful that it paves the way for a positive result at trial against CACI,” said Baher Azmy, an attorney for the former detainees and legal director of the Center for Constitutional Rights.
The suit against CACI, in U.S. District Court for the Eastern District of Virginia, has four plaintiffs, all Iraqis who spent time at Abu Ghraib, according to court documents. The suit, which is slated to come to trial no sooner than summer, contends that the detainees were “brutally tortured” by conspirators that included CACI employees and states that all four continue to suffer from physical and mental injuries related to the torture.
But CACI has shown no signs of settling. J. Phillip “Jack” London, CACI’s former chief executive, published a book in 2008 titled “Our Good Name: A Company’s Fight to Defend Its Honor and Get the Truth Told About Abu Ghraib.”
Three and a half years after Abu Ghraib became a scandal, “it was evident that CACI came through its ordeal with minimal impact on its core business, but with an emotional toll on its people and an undeserved challenge to its reputation,” London wrote.
CACI has argued in court documents that the company and its employees should have immunity and that the plaintiffs failed to detail specific instances of interactions with company employees.
“CACI continues to believe that the lawsuit is completely without merit, the company will defend itself vigorously, and the settlement involving Engility will have no impact on CACI’s handling of the matter,” said William Koegel, CACI’s counsel, in a statement.
William Loomis of Stifel Nicolaus, a financial services company that has business relationships with many contractors, including CACI and Engility, said that as a new public company, Engility might be more interested than CACI in settling its case.
“It’s a new company, new management team, their own show,” said Loomis, managing director at the company. “When you’re in a situation like that, you want to clear out things that are overhanging the story and could cloud investors’ and customers’ view of this new entity.”
The financial impact on Engility will probably be limited, analysts said. The company’s stock has stayed relatively stable since it released news of the settlement last year.
The Engility and CACI cases aren’t likely “to rattle investor sentiment regarding defense services,” said Byron Callan, a director at the District-based research firm Capital Alpha Partners. “It shouldn’t be something that is a really new or different financial dynamic for the services sector.”