The Justice Department yesterday asked a federal judge for more time to consider taking a legal position that could have far-reaching implications for the handling of alleged contractor misdeeds in Iraq under the Coalition Provisional Authority.
U.S. District Judge T.S. Ellis III had sought guidance on a deceptively complex question: Was the CPA -- which governed Iraq for a year after the fall of Saddam Hussein -- an arm of the United States, or was it part of a broader international body?
The government's response could determine the fate of a lawsuit that whistle-blowers have filed against Custer Battles LLC, a Fairfax-based contractor that is accused of defrauding the CPA of tens of millions of dollars during work in Iraq that included securing Baghdad International Airport. Because the case is the first to be unsealed involving charges of fraud in the multibillion-dollar Iraqi reconstruction effort, it could set precedents.
The government's handling of the case is of great interest to legal scholars, who say the CPA's definition has long been in doubt. "The government used the amorphous status of the CPA to its advantage," said Steven L. Schooner, a professor of government contracting law at George Washington University. "The government clearly played the CPA so that sometimes it was the government and sometimes it wasn't."
Schooner said the Justice Department is in a difficult position because identifying the CPA as a U.S. entity could make the government legally responsible for the CPA's actions. On the other hand, he said, "it's not a very attractive position to say, 'If you stole U.S. money, you're liable. But if you stole Iraqi money, the U.S. government just doesn't care.' "
Ellis had asked the government to clarify its position on the CPA by today, but Justice Department lawyers asked for an extension until April 8, a request that the judge has the option to accept or deny.
Former Custer Battles employees have claimed the company defrauded the CPA of tens of millions of dollars by creating sham companies in the Cayman Islands, and by overbilling. They sued last year under the False Claims Act, seeking to recover damages on behalf of the government. The Justice Department declined in the fall to intervene on the whistle-blowers' behalf.
Attorneys for Custer Battles have since sought to have the lawsuit thrown out on the grounds that the money they are accused of stealing was Iraqi money, not American. They also argued that even though U.S. officials were administering the funds on behalf of the CPA, the authority was a creation of the international community and thus the case doesn't belong in U.S. courts.
"The government always went out of its way when it spoke publicly about the CPA to say that it was a coalition entity, not a U.S. entity," Custer Battles attorney John T. Boese said in an interview.
Victor A. Kubli, an attorney for the two whistle-blowers, disagreed, arguing that the evidence shows that the CPA was a U.S. government creation and Custer Battles was initially paid with new bills from the U.S. Treasury.
Kubli said that contractors operating in Iraq under CPA authority have already been exempted from Iraqi law and that exempting them from U.S. laws would allow fraud to go unpunished. "There would be a lot of relieved contractors," Kubli said.
Sen. Charles E. Grassley (R-Iowa) yesterday lent support to the whistle-blowers in a letter to Attorney General Alberto R. Gonzales. "If the [False Claims Act] is found not to apply to any contract entered into by the CPA," Grassley wrote, "any recovery for fraud, waste and abuse of taxpayer dollars under the [act] would be prohibited." Grassley went on to warn Gonzales of "the potential danger that a negative precedent in this matter would create."
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