Over the weekend, the United States Court of Appeals for the Fifth Circuit ruled that Trinity Industries (TRN 35.44, +3.54 +11.1%) and Trinity Highway Products, LLC did not commit fraud, reversing the District Court’s $682.4 million False Claims Act judgment and rendering judgment for the company.
The ruling, out on September 29, reversed the original judgement against TRN which held that the company committed fraud because the guardrail maker produced unsafe guardrails which could jam and penetrate vehicles. Following changes made in 2005 to the company’s ET-Plus guardrail system, the lawsuit alleged that TRN failed to tell federal regulators of critical dimension changes made and that the company knowingly made false certifications to gain US approval.
The original lawsuit was made on behalf of the United States of America by Joshua Harman, a competitor who only discovered the dimension change made by TRN in 2011. Mr. Harman was awarded about $19 million for lawyer fees and expenses in the original verdict which saw $175 million in penalties under the False Claims Act – tripled to $525 million under the federal whistle-blower law – and $138 million in civil penalties for each of about 16,700 false certifications made to the federal government to get payment for the allegedly faulty guardrails.
Subsequently, states began banning the ER-Plus guardrail product as TRN appealed the verdict.
TRN highlighted that as the Fifth Circuit noted, the federal government has consistently reaffirmed the ET-Plus System meets all federal safety performance standards.
Shares advance to 30-month highs dating back to the spring of 2014 following the appeal verdict. Up until Monday, shares of TRN had been carrying 14% gains YTD with a 10.1% gain in September aiding the advances.