Two ocean shipping companies, that previously pleaded guilty to engaging in anticompetitive conduct in violation of the Sherman Act, have now agreed to settle a whistleblower’s qui tam case alleging procurement fraud in violation of the False Claims Act. The Sherman Act is a law passed in 1890 that prohibits certain business activities that the federal government deems to be anticompetitive.
According to its website, Horizon Lines, Inc. (“Horizon”), headquartered in Charlotte, North Carolina, is the only ocean cargo carrier serving all three of the United States’ noncontiguous domestic markets – Alaska, Hawaii and Puerto Rico – from the continental United States. It has a fleet of 13 ships and operates a total of five port terminals.
The other company, Sea Star Line, LLC (“Sea Star”) is headquartered in Jacksonville, Florida and serves ports in Jacksonville; Port Everglades, Florida; San Juan, Puerto Rico; and St. Thomas in the U.S. Virgin Islands.
In January 2013, a former Sea Star executive, William Stallings, filed a whistleblower claim under the qui tam provisions of the False Claims Act alleging that Sea Star and Horizon engaged in price fixing concerning government contracts for the delivery of goods for federal agencies in violation of the False Claims Act and Sherman Act. Price fixing occurs when competing service providers agree to maintain prices at certain levels, rather than competitive contracting which is intended to ensure that goods and services are provided at the lowest possible cost.
The whistleblower specifically alleged that former executives of the two shipping companies communicated confidential bidding information to each other using their personal email accounts. According to the complaint, the shippers disclosed the rates and routes they intended to submit to federal agencies. The government alleged that the purpose of this was the allocation of specific routes between the shippers at predetermined rates to eliminate competition.
According to the Justice Department, some of the contracts at issue involved U.S. Postal Service contracts to ship mail and U.S. Department of Agriculture contracts to ship food from the continental United States to Puerto Rico.
Sea Star has agreed to pay $1.9 million and Horizon has agreed to pay $1.5 million to settle the whistleblower’s claims. The whistleblower will receive approximately $500,000 as his reward under the qui tam provisions of the False Claims Act.
To read more about False Claims Act cases, read here.