Legal Briefing: U.S. Foodservice Pays Up for Cheating Government


A daily look at legal news and the business of law:

U.S. Foodservice Fraudulently Overcharged the Federal Government , Too

The Wall Street Journal reports that U.S. Foodservice agreed to pay $30 million to settle charges it fraudulently overcharged the federal government -- just the latest in a series of companies making similar settlements. U.S. Foodservice, which is jointly owned by Clayton, Dubilier & Rice and Kohlberg Kravis Roberts, had contracts with the Departments of Defense and Veterans Affairs that allowed it to sell food to the government at a fixed mark-up to the company's costs.

To increase profits, U.S. Foodservice created shell companies and used them as middlemen to inflate costs and thus increase the total price to the government. Some 15 people have already pleaded guilty in related criminal charges, reports Businessweek.

Multi-State Health Care Suit Arguments Today

On Tuesday U.S. District Court Judge Roger Vinson of the Northern District of Florida will hear arguments in the multi-state lawsuit against health care reform. The federal government will try to persuade Vinson to dismiss the suit, mostly on the grounds that the states, plaintiff small business trade association, and the individual plaintiffs have no standing or right to sue.

Further, the government will argue that the issues aren't ready -- or ripe -- for a judicial decision because the contested provisions haven't yet taken effect. (Other arguments relating to the power of federal government to regulate states as employers are also involved.)

Virginia's separate lawsuit already survived a similar effort by the federal government, however that decision hinged on facts not alleged in the multi-state suit: Virginia had a state law in conflict with health care reform, which the judge held gave Virginia standing and made the issues ripe for decision.

Arguments in Key Case Over Fraud Liability Today

If a company's auditor failed to catch and report fraud by the company, can shareholders sue the auditor? Perhaps surprisingly, the answer is usually "no". That is, unless a case being argued today before New York's highest court results in a change in the doctrine of "in pari delicto," which says that co-conspirators can't sue each other, reports the Am Law Daily.

Treating the injured shareholders as co-conspirators with an auditor who failed to catch -- or perhaps actively participated in -- fraud by a company's executives seems to go against common sense. With luck, the Court of Appeals will agree, and allow more of these suits to happen. Such liability would surely increase auditors' scrutiny of their clients' books.

Harrisburg, Penn. Sued for Not Paying Bonds

Harrisburg, Penn. stands behind the Harrisburg Authority as a guarantor of the Authority's incinerator debt. Now that the Authority is failing to pay bondholders, the bonds' insurers are suing the Authority and the city to force them to make good on the bonds, reports the Wall Street Journal. If the suit against Harrisburg is successful, the city will no doubt need to cut services and/or raise taxes to pay the bond insurers back -- not something Harrisburg residents are eager to hear.

And in the Business of Law:

A new study suggests gender, and nothing else, is the reason women partners make less money than men, reports the ABA Journal. Unfortunately for the women, their status as partners so far prevents them from suing for gender discrimination. Nonetheless, as the evidence piles up, I find it hard to believe that these smart, hardworking women won't find some way to even out the pay scale.

Originally published