On November 19, 2013, the Department of Justice (“DOJ”) announced that FreshPoint, Inc., the nation’s largest distributor of fresh produce, agreed to settle claims that it defrauded the Department of Defense (“DOD”). FreshPoint, Inc., based in Houston, Texas, is a wholly-owned subsidiary of SYSCO, Corp. who was also listed as a defendant in the qui tam case. The allegations stem from fraud committed by FreshPoint in connection with fifteen contracts to provide fresh fruits and vegetables to DOD schools and military institutions.
Former FreshPoint employee Charles Hall filed the lawsuit in a Georgia federal court, pursuant to the qui tam provisions of the False Claims Act, 31 U.S.C. § 3729. According to Mr. Hall, FreshPoint was contractually required to charge the DOD for produce at its actual cost, plus a pre-set price mark-up. Under this agreement, FreshPoint was expressly prohibited from making its own price adjustments. Mr. Hall alleges that from Dec. 17, 2007 to Sept. 11, 2009 FreshPoint routinely violated its DOD contracts by improperly inflating its prices to reflect its own market perceptions. This in turn resulted in hundreds of pricing violations.
Under the settlement, FreshPoint will pay the federal government $4.2 million. As the whistleblower, Mr. Hall will receive an award of approximately $798,000. In a DOJ statement Assistant Attorney General Stuart F. Delery stated, “[t]he Department of Justice is committed to ensuring the integrity of federal contracts and will pursue contractors that knowingly overcharge the government for goods or services … contractors that do business with the government must do so honestly and fairly or suffer the consequences of their misconduct.” For its part FreshPoint denies the allegations and claim the settlement is not tantamount to an admission of guilt.
This case is representative of many fraud schemes perpetrated by government contractors. The onus is generally on companies contracting with the U.S. government to provide the best price possible for goods and services. Often this comes in the form of pre-set mark-ups, such as those at issue in this case. This theoretically ensures that the government, and by extension the U.S. taxpayers, are getting the best deal.
The DOD is a sought-after customer for providers of fresh produce. Due to the enormity of its mandate and the sheer volume of its personnel, the DOD is the nation’s largest food service provider.
The case caption is U.S. ex rel. Hall v. SYSCO Corp., No: 4:11-CV-57 (S.D. Ga.).
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