Voluntary Dismissal of RICO Claim follows Grant of Motions for Summary Judgment of Hidalgo County Case
On February 6, 2018, the current and former owners of a small family data collection firm accused of corruption and conspiring to defraud the taxpayers of Hidalgo County out of millions of dollars during the reconstruction of 22 miles of levees with new border fencing along the Rio Grande River were exonerated.
Just days after the sitting visiting judge in the case (Hidalgo County District Court, Hidalgo County Texas, 275th Judicial District, Cause No. C-0373-17-E) remarked in open court that he “wrestled to find enough smoke to suggest that there is a fire some place”, the final claim remaining against Annie Garza, current owner of Valley Data, and her two sons, Jonathan and Godfrey Garza III, the company’s former owners, was dismissed.
The dismissal was of a last-minute claim brought by attorneys for the county against the Garzas and the company under the Racketeer Influenced Corrupt Organization Act (RICO), alleging bribery, mail fraud, wire fraud, money laundering. It was filed just last week as visiting Judge Martin Chiuminatto was ruling in favor of motions for summary judgment in the case, said the Garza’s attorney, John Newton of the Houston-based law firm Roach & Newton.
The District filed suit in January 2017, alleging $5.3 million of illegitimate revenue gained by breach of contract, breach of fiduciary duty, fraud, conspiracy, unjust enrichment and constructive trust against the Garzas and the company. Annie Garza’s husband, Godfrey Garza, Jr. and his company, Iteg Corporation, also were named in the suit. The case against Garza, Jr., former manager of the Hidalgo County’s Drainage District No. 1, is effectively over, as well.
“There was nothing new in the RICO claim,” Newton said, adding that “In a case where there is public scrutiny and national publicity with incendiary allegations, the key is to focus on developing winning legal arguments judges will accept while ignoring the surrounding noise to protect personal financial futures and reputations.”
The county attorney and its then-commissioners openly negotiated a contract with Garza, Jr. to receive 1.5 percent of every construction dollar spent by the drainage district of which he was manager, according to a four-year investigation and court records. The levee-fence in Hidalgo County cost $174 million and was part of a federally-funded project to build 654 miles of barriers between the U.S. and Mexico a decade ago.
Fifth Circuit Embraces Our Arguments and Reverses the Largest Ever Qui Tam Verdict.
On September 29, 2017, the Fifth Circuit unanimously reversed and rendered a $663 million judgment – reportedly the largest ever in a False Claims Act case – against Trinity Industries. United States ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645 (5th Cir. 2017). In this lawsuit, tried in the Eastern District of Texas, legal arguments developed by Roach & Newton and presented by our lawyers and co-counsel at trial and in an extraordinary mandamus petition were ultimately embraced and accepted by the Fifth Circuit.
Before trial, Roach & Newton’s founder, Randy Roach, and partner, Manuel López, led a team of appellate lawyers in preparing a mandamus petition asking the Fifth Circuit to stop the trial. The mandamus petition focused on the federal government’s continuous approval of the product at issue, asserting that “it is illogical for Trinity to be subject to [False Claims Act] liability when the federal agency charged by Congress to decide whether products … are eligible for reimbursement has examined [the] allegations and rejected them.” The Fifth Circuit denied the mandamus petition but issued a rare written opinion that effectively admonished the District Court and the parties about the importance of the federal government’s “authoritative” rejection of the underlying fraud allegations.
At trial, Roach & Newton led the effort to prepare the case for the eventual appeal. Roach & Newton’s efforts culminated in the filing of Trinity’s Rule 50(b) Renewed Motion for Judgment as a Matter of Law, which can be viewed in its entirety here. While the Motion was wide ranging and exposed countless defects with plaintiff’s case, the Motion primarily stressed that the federal agency’s “investigation and decision should end this case as a matter of law.”
In reversing and rendering judgment in favor of Trinity, the Fifth Circuit zeroed in on the same issues highlighted at trial by Roach & Newton, concluding that “Congress enacted the [False Claims Act] to vindicate fraud on the federal government, not second guess decisions made by those empowered through the democratic process to shape public policy.” Trinity, 872 F.3d at 668-69.
The Fifth Circuit quoted its pre-trial mandamus opinion at length, explaining how that opinion constituted “a caution from this court that the case ought not proceed.” Id. at 647. Ultimately, the Fifth Circuit reversed the judgment by holding that the District Court should have granted Trinity’s Rule 50(b) Renewed Motion for Judgment as a Matter of Law. Trinity, 872 F.3d at 652. A copy of the Fifth Circuit’s decision can be viewed here.