Judge Clears Contractor of Fraud in Iraq

By Dana Hedgpeth
Washington Post Staff Writer
Friday, February 9, 2007

A federal judge has dismissed a civil case against a military contractor accused of improperly billing Iraq reconstruction authorities for tens of millions of dollars worth of security services that it did not provide.

U.S. District Judge T.S. Ellis III in Alexandria said there was no evidence that Custer Battles, a firm started by Army veterans Scott Custer and Michael Battles, committed fraud under a $16.8 million contract to provide security at the Baghdad International Airport in 2003.

"It gives them the vindication they deserve," said Robert T. Rhoad, an attorney for Custer and Battles. "They've been fighting these legal battles for the last three years to try to clear their names from these irresponsible claims that have been made by their competitors."

The case is one of two brought against Custer Battles over its work in Iraq for the Coalition Provisional Authority, which ran Iraq after the U.S.-led invasion until a government was elected. A jury found the company, which had offices in Northern Virginia, liable for fraud in an earlier case, but Ellis dismissed that verdict. He ruled that it was improper to bring the charges up in U.S. court because the authority was not a U.S. entity.

Yesterday's ruling involved a second case brought under a federal whistle-blower statute by Robert Isakson, who worked for a Custer Battles subcontractor, and William D. Baldwin, who worked for Custer Battles. They alleged that the company failed to make good on a commitment to provide 138 people as part of its airport security contract. Instead, Alan Grayson, an attorney for Isakson and Baldwin, said Custer Battles moved airport personnel to other contracts and illegally double-billed for their work.

Ellis, however, ruled that the contract didn't call for a specific number of security personnel, and he found that Custer Battles did not knowingly commit fraud.

Grayson said his clients planned to appeal both cases to the U.S. Court of Appeals for the 4th Circuit in Richmond. He pointed to the testimony of Col. Richard Ballard, a former Army inspector general in Iraq, saying that Custer Battles should not have charged the CPA for security services because they were not needed; the airport terminal had already been secured by about 21,000 allied troops.

"The judge disregarded evidence of fraud that was in the record, including evidence that was found by a top U.S. official in charge of fettering out fraud in Iraq," Grayson said. "We believe that all these issues have to be decided by a jury."

Charles Tiefer, a government-contracting professor at the University of Baltimore School of Law, said the judge's ruling "means that taxpayers are going to have great trouble recovering any of the money lost by contractor abuses in Iraq."

"He's requiring a high level of proof that a contractor that obtained a juicy award on dubious grounds was 100 percent fully aware that it was planning to cheat the government," Tiefer said.

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