Defense Contractor Alleged to Have Overcharged Military for Fruits & Vegetables

Los Angeles-based Coast Produce Company recently found itself in a real pickle amid allegations that it grossly overcharged the U.S. military for the delivery and provision of fresh fruits and vegetables. According to a recent press release, the defense contractor agreed to settle the allegations for $4 million and entered into a corporate integrity agreement to help that ensure taxpayers are not defrauded in the future.

The lawsuit began in 2008 upon the filing of a qui tam action under the False Claims Act. The whistleblower in the case, who is a former employee of the company, is expected to receive $920,000 in exchange for his willingness to come forward. Under the False Claims Act, a whistleblower, also known as a relator, can receive up to 30 percent of a case in which the government opts not to intervene or, as is the case here, 25 percent if the government files a complaint in intervention.[1.“SoCal Company Pays $4 Million and Enters into Agreement to Resolve Allegations it Overcharged U.S. Military for Fruit, Vegetables,” Department of Justice, November 2, 2015, http://www.justice.gov/usao-cdca/pr/socal-company-pays-4-million-and-enters-agreement-resolve-allegations-it-overcharged-us.]

Details of the allegations

Coast Produce signed a contract with the Department of Defense for the provision of fresh fruits and vegetables to dining facilities aboard U.S. Naval ships docked in Southern California. Under the contract, the defense contractor was permitted to charge wholesale price plus an additional fixed $1.50 per unit to allow for a profit. Despite the simplicity of this agreement, Coast Produce allegedly devised a multi-layer pricing scheme to defraud the government in three distinct ways:

• Instructed suppliers to provide an inflated quote for the price of fresh fruits and vegetables, which it then submitted to the government for reimbursement;
• Charged the government more than it actually paid for bananas and pineapples under its long-term fixed-price supply contracts;
• Submitted unusually high price quotes to the Department of Defense from vendors it did not have any intention of buying from, thereby setting an inflated payment rate.

In addition to the False Claims Act allegations, the company is facing criminal culpability for obstructing the government’s investigation into the matter. More specifically, the company is alleged to have falsified records requested by the Department of Defense concerning the prices the company was paying for its produce. However, the DOJ agreed to a two-year deferment of criminal charges provided the company cooperates and adheres to the terms of the corporate integrity agreement executed in conjunction with the $4 million settlement.[2.Fellman, Sam, “Prosecutors say vendor overcharged military for fresh fruit,” Navy Times, November 4, 2015, http://www.navytimes.com/story/military/pentagon/2015/11/04/prosecutors-say-vendor-overcharged-military-fresh-fruit-coast-produce/75169304/.]

In a statement by the U.S. Attorney’s Office, “[T]he agreements with Coast Produce demonstrate that this office will use all criminal and civil tools at its disposal to ensure that contractors who overcharge the United States military are held accountable….Companies that supply produce and services to our military members should know that our office will aggressively investigate those who seek to unlawfully profit from that relationship.”

The Defense Criminal Investigative Service similarly commented, stating “[T]he government’s settlement agreements with Coast show the continued dedication….to protect those funds entrusted to the U.S. military. Overcharging the Department of Defense is always reprehensible because it drains precious funds and resources necessary to protect America’s warfighters. The Defense Criminal Investigative Service will continue to investigate any individual or business who pursues personal enrichment at the expense of U.S. taxpayers.”