Battles

WASHINGTON — Michael J. Battles, a former Rhode Islander recently cleared of charges of war profiteering in Iraq, voiced a sense of exoneration this week — while condemning his accusers and the system that let them bring their high-profile case against his company.

Battles said the dismissal earlier this month of a civil fraud case against him and business partner Scott Custer vindicated “our steadfast belief” that “we never did anything wrong” in executing millions of dollars worth of contracts in the chaotic aftermath of the U.S. invasion of Iraq in 2003.

The West Point graduate and onetime Republican congressional candidate renewed his portrayal of the lawsuit as the attempt of “two disgruntled employees” to exploit the legal system and play “litigation roulette” for personal gain.

Battles, 36, spoke two weeks after a federal judge dismissed a fraud case stemming from the Custer Battles company’s $16.8-million contract to provide security at Baghdad International Airport for about a year at the start of the military occupation of Iraq. Earlier, U.S. District Judge T.S. Ellis III had overturned a jury’s assessment of $10 million in damages and penalties against Custer Battles in a related case, in which the defendants had been accused of fraudulently inflating their profits on another job in Iraq.

“It will take us a while before the reputational damage can be overturned,” said Battles. That was a reference to the harsh and prolonged publicity that attended the case, including the adverse verdict last March after a three-week jury trial in the U.S. District Court for the Eastern District of Virginia. Custer Battles became a symbol of an overall pattern of war profiteering in Iraq.

The case was a civil lawsuit brought against Custer Battles and its cofounders under a federal law typically used by whistleblowers charging fraud against the government. The whistleblowers had worked in Iraq with Custer Battles, a small company that had offices in Virginia and Rhode Island.

Battles and Custer, another former Army officer, were depicted by their accusers in scenes from a modern-day Wild West — an Iraq fraught with prospects for fast money and for violence in the months after the fall of Saddam Hussein in 2003. Battles said such images live on in Google and other Internet search engines, despite the fact that the civil accusations against him and Custer have come to nothing. He said that he and Custer have never been told that they were the target of any criminal investigations.

Last March, the jury accepted the contention of two former Custer Battles associates, William D. “Pete” Baldwin and Robert J. Isaakson, that the firm fraudulently inflated its profits on a rush job to help replace Iraq’s currency system. Still in the wings was a possible second trial of charges that Custer Battles used double-billing and other tricks to inflate profits on the airport contract.

In August, however, Judge Ellis threw out most of the March jury verdict. His decision turned on the issue of whether it was the U.S. taxpayer who had actually employed Custer Battles. The company’s contract was not with the federal government but rather with the Coalition Provisional Authority (CPA), the U.S.-led international body that ran Iraq for more than a year after the fall of Saddam. His ruling never dealt with whether the company had committed fraud.

Then on Feb. 7, Ellis dismissed the charges stemming from the Baghdad Airport contract. Ellis zeroed in on what he treated as a threshold issue for putting the lawsuit before a jury: allegedly false statements by Custer Battles about how many people were to work on the Baghdad airport security job — a key facet of the contract.

Ellis relied heavily on a sworn statement of Frank D. Hatfield, a high-ranking officer of the Federal Aviation Administration, who acted as Iraq’s minister of aviation during the time of the Custer Battles contract.

“The undisputed facts manifestly demonstrate” said Ellis, that the accusers failed to show that Custer Battles lied about staffing levels at the airport. Even if Custer Battles had made such false statements, the whistleblowers couldn’t show that the CPA based its award of the airport contract on the number of personnel to be assigned to the work, Ellis said.

Hatfield said Custer Battles won the contract because it submitted the low bid and pledged to meet the CPA’s deadline and provide the type of personnel the CPA wanted.

Since the whistleblowers couldn’t show false statements, they “cannot establish a fraudulent inducement claim,” Ellis said.

Alan M. Grayson, the lawyer for the whistleblowers, said the judge should have let the charges go before a jury. Grayson produced a sworn declaration by a retired Army colonel whose duties in protecting the U.S. force near the airport put him in regular contact with the Custer Battles security operation there. The retired officer, Richard F. Ballard, gave a detailed account of what he called the “slipshod” and “negligent” conduct of Custer Battles employees.

But Custer Battles lawyer Robert T. Rhoad pointed to the detailed statement by the FAA’s Hatfield in which he called Custer and Battles “exceptional contractors with a ‘can do’ attitude.”

Hatfield called Custer Battles “one of the finest contractors I have worked with” during 36 years in government.

“These guys do a very good job of throwing everything they can at the wall to see what will stick,” Battles said, referring to the whistleblowers. “Then they try to get it in front of a jury.”

Battles repeated a line of defense from last year’s trial: that accuser Baldwin had been demoted during the course of his employment by Custer Battles. But in his ruling last summer, Judge Ellis left intact the portion of the jury finding that Baldwin had in effect been punished by the company for his attempts to blow the whistle. Battles also said the company severed ties with accuser Isaakson after Isaakson brought his 13-year-old son into occupied Iraq.

Isaakson declined to discuss that charge during last year’s trial.

Battles criticized lawyer Grayson as well for “running for Congress on an antiwar agenda” while representing the whistleblowers against Custer Battles. Grayson lost a Democratic primary campaign for the right to challenge a House GOP incumbent in last fall’s general election.

Battles ridiculed the whistleblowers’ theory that, as a onetime Republican congressional candidate, he enjoyed some kind of special clout with the Bush administration. “I couldn’t get out of a Republican primary!” he remarked, referring to his losing campaign in 2002. Fellow veteran David W. Rogers beat Battles and another Republican to become the party’s unsuccessful challenger to Rep. Patrick J. Kennedy.

The Pentagon’s special inspector general for Iraq, Stuart W. Bowen Jr., has produced a steady stream of audits documenting wasteful and shoddy contracting in Iraq, plus some instances of criminal fraud that have produced guilty pleas.

But the Custer Battles lawsuit is the only case of alleged war profiteering that has gone to trial. It was filed under the False Claims Act, a Civil War-vintage legal tool that Congress updated and sharpened during the defense-contracting boom of the 1980s. The law allows whistleblowers to file civil lawsuits alleging fraud against the taxpayer. Often, the self-styled whistleblowers are employees or associates of the accused and thus have inside knowledge of the transactions that they brand as frauds. The law requires the accuser to show the case for the fraud to the federal government, which then has the option to take part in the lawsuit.

The government declined to join in the Custer Battles case. Battles criticized the False Claims Act.

“It befuddles me and it frustrates me,” he said, “that we have a system today where someone can make claims on behalf of another party and that other party [the government] can say, ‘No, I don’t feel that I was an injured party.’ Yet (the whistleblowers) can continue the legal battle and receive significant compensation if they are successful.”

jmulligan@belo-dc.com