A Q&A with KBR’s vice president for litigation, Mark Lowes
By Mike Francis, The Oregonian
on January 05, 2013 at 4:01 PM, updated January 05, 2013 at 11:24 PM
When a federal jury in November awarded $85 million to 12 Oregon National Guard soldiers and veterans who sued defense contractorKBR Inc. in court in Portland, it marked a first step in what is sure to prove a very long course toward legal resolution.
Waiting for their day in court in Oregon are two dozen more plaintiffs and, in Texas, more than a hundred other soldiers from Indiana and elsewhere. All claim they were exposed to a hexavalent chromium, a carcinogenic component in an anticorrosion compound, while protecting KBR contractors at the Qarmat Ali water treatment plant in southern Iraq in 2003. They say they suffered injuries or stress or both as a result. For much of the trial, lawyers for each side were under a court-imposed gag order, which blocked them from discussing the case publicly. After the gag order was lifted last month, Mark Lowes, KBRs vice president of litigation, agreed to discuss the case and other matters with The Oregonian’s Mike Francis. This offers the first window into the way KBR views the case brought by Iraq war veterans against the contractor, which earned $480 million in 2011 on revenue of $9.26 billion. This interview has been edited for brevity and clarity.
The Oregonian: You’ve had two false claims cases in the news recently. The Department of Justice dismissed one, then filed another. I’d like to ask about KBR’s cost of doing business in the environment in which you operate.
Lowes: The dismissed one was what we refer to as the private security false claims act case. We spent a year and a half with the DoJ (Department of Justice) explaining contractually and in legal and in practical matters why their position was just nonsense. They filed the case anyway, delayed discovery for two years and once we finally got the deposition of principal contracting officer and the auditor, they ended up dismissing the case within six months.
For me, the frustration here is, we try to do things right. We try to follow the law, we try to have good safety programs for our employees. I’m just amazed at what the government will do without adequate investigation. And if you didn’t notice: Big fanfare when they filed the claim, press release. They wait to file the dismissal at 6 p.m. Friday of a holiday weekend so that hopefully it won’t be picked up the next week. And then they file a new False Claims case case and issue a press release. So much for our government at work.
Q: Care to say anything about the other one, about containerized housing?
A: If you and I have this discussion in a year, we’re going to find it follows the same path as the first one. It’s sound and fury signifying nothing.
Q: Why does it happen then? Is there some appetite within the government for picking a fight with KBR?
A: You’d have to ask the government, but what I can tell you is they don’t operate like a commercial concern. When we decide whether to litigate on something, we have to look at the economics and the merits. The DoJ doesn’t do that. They don’t gain a budget, they don’t lose a budget and I can’t see that they’re accountable to anybody for good or bad decisions. I am. I have a board and a boss and others that, if I do stupid things, they’re going to hold me accountable.
Q: Any annual report you publish is full of legal risks that may or not be major. It seems it’s just a fact of life that if you’re KBR, you have to assume you’re going to spend a lot of money on lawyers along the way. How do you sort what’s important and what isn’t?
A: For purposes of our public filings, it’s going to be the magnitude of things or potential impact. Routine matters aren’t going to be there unless they happen to have significant dollars with them. If they’re matters of high public interest, then we feel a need to make sure our investors are educated on them, so we’ll include them.
For example, we had the Jamie Leigh Jones litigation (in which a KBR employee sued the company claiming she was raped and sexually harassed while working in Iraq). It was not, in our evaluation, significant exposure to the company. Bad publicity, bad testimony before Congress, but as the jury ultimately concluded, there were no merits to it and we ultimately won it. We included it in our public filings, not because we thought we were wrong, but we felt we needed to educate them on what was appearing in the public literature.
If you look at our work supporting the Army, the reality is you can’t sue the federal government. If I’m a soldier and I’m hurt or something else, there is no recourse for suing the federal government. They’re just immune. So they look around at who can they sue and, well, we were one of the largest contractors, so we draw a fair number of claims.
And on the contract side, we deal with settling out these claims with the Defense Contract Auditing Agency and neither they nor the group that was to supervise us under the contract were prepared for or equipped for this war.
Our original statement of work, when we followed the Army in in March of ’03, was that we were supposed to be prepared to be there for six months. Months, not years. And they were looking at us supporting between 50,000 and 75,000 troops split between a handful of bases. Nine years later, with over 200,000 troops at 80-plus bases spread across a country the size of the state of California, it’s just a different operating environment than they thought. They were behind the curve from Day One.
Q: That’s a great summary of what a lot of people have said about the invasion of Iraq. Were you surprised? Did you expect the sort of blowback you’ve gotten for your operations in Iraq?
A: I will tell you that our operations in Iraq and the LogCap III contract were bid and based on work that we had done in the Balkans. In the Balkans, I’ll bet we didn’t have 10 lawsuits. And the reason was the Balkans were a traditional atmosphere. There’s a front line, there’s a rear line, you didn’t have the same type of sectarian violence, you didn’t have IEDs (improvised explosive devices). It was basically a peacetime environment.
Iraq’s a totally different ballgame. And so it created issues that no one — us, the government or the military — anticipated.
Q: Let me ask about our two cases, Bixby and McManaway. (Bixby is the Oregon case: McManaway is a similar case filed in Texas by Indiana Guard soldiers and others.) You’re hoping not to have any other trials in either venue.
A: I’d certainly like to avoid the cost of that. We think the motions now before the Fifth Circuit (based in New Orleans) on the political question and combatant activities will preclude a trial. And frankly, if the judge doesn’t reconsider his position in Bixby (the Oregon case), the Ninth Circuit (based in San Francisco) will hear those same issues.
We think we’re right on them. We’ve litigated that issue in the Fifth, Fourth, Third and simply won it. So I think ultimately we’ll prevail here.
Q: Do you see the Bixby verdict and get concerned that, in fact, it’s the beginning of a serious financial setback or is it an aberration?
A: It’s an aberration, factually and legally. We’re always concerned, but we’re in the business of building stuff, not in the litigation business. So we’d always rather avoid that. I just think it’s the unique situation in Iraq, when they look around and can’t sue their own employer, so they look to see who they can blame.
Q: One thing is a matter of principle and one is a matter of business. You’ve got an $85 million verdict here and another $15 million in legal costs and that could multiply. Has it become an area of higher concern because of that?
A: Yes and no. We’re always concerned about it and monitor it closely. (But) we have a cost reimbursement contract with the government. They specifically gave us an indemnity against hazardous activities including oil-field restoration. Qarmat Ali is part of the oil field restoration.
Under our cost-plus contract, the indemnity expressly recognizes that we could not get insurance for environmental exposure. Our reading of the federal acquisition regulations and our contract is that we’re entitled to bill our cost of defense and any recoveries to the government.
While we want to be good stewards of the government dollar, unless and until they tell us they don’t want us to defend these cases and engage in a settlement, we’re going to defend them.
This is not our first rodeo on this. We did the same thing on what we call the convoy litigation that was pending in Houston. We litigated through and we ultimately won it in the Fifth Circuit. We billed to the government the complete cost of that and I’m fully confident that they’re going to pay it.
Q: What explains that (the Army Corps of Engineers) rejected the first attempt you made to apply the indemnity clause to this case?
A: I can give you my analysis. It is very hard for the military to come out in public and take an affirmative stance opposing a soldier. They’ll do everything behind the scenes, they’ll give you documents, they’ll give you witnesses, they’ll give you declarations, but to have somebody stand up and say no to a soldier, they just are very reluctant to do it.
In our convoy case, the Department of Labor finally appeared and briefed and argued through the Department of Justice when they finally realized it was their interest, their program that was going to be impacted if they didn’t do it.
In some ways we’re our own worst enemy because we’ve routinely been successful in the litigation. My sense is that they’d rather have us fight the battle so that they don’t have to take the political heat.
Q: Was there ever a pushback from the government, saying we don’t want to cooperate? Maybe because it was classified?
A: I don’t recall them ever saying it was classified. And as opposed to “pushback,” I would say it’s a failure to embrace it with enthusiasm.
Q: You’ve sued the government saying you’re protected under the indemnity clause; they’ve said no. What happens next?
A: A judge will decide the contract interpretation issues and we’ll get resolution of it. And frankly, if the Army is told is has to do it by a judge, they avoid the political heat of doing it voluntarily. You might have seen some of the political heat already from the Oregon senators complaining about the indemnity, wanting to change the law, which I might add is a wholly uninformed…
Q: I wanted to ask you about that. We have now a signed defense authorization act that includes an amendment by an Oregon senator that requires the Pentagon to disclose these things. Is that inappropriate?
A: Congress can do anything it wants. The indemnity we got was issued by the Secretary of the Army. It wasn’t some clerk doing this on a whim and a chance. It was a rigorous process. The idea that having disclosure of this would have changed this — the only thing it would have changed you would never have been able to have a contractor support the military without the indemnity.
Q: But is the disclosure itself a problem? The amendment calls for the disclosure of such an indemnification. Is that a chilling amendment?
A: It doesn’t affect us at all. We’re fine with the disclosure, but the idea that this is somehow needed to prevent inappropriate activity — totally lacks factual analysis. It’s a knee-jerk reaction when, in fact, no contractor could have gone into Iraq to support the military without it.
Businesses evaluate risk. That’s how you price a product and how you decide what jobs you will and won’t do. And in a situation where you can’t physically control the risks or get insurance to mitigate them, you simply can’t operate. Absent the indemnity, we would not have been able to support the military in this effort.
Q: Perhaps the amendment was more a message to the Pentagon than about anything KBR did.
A: If you asked (military leadership) could they have executed the war without KBR’s support, the answer would be a resounding “No.” They did not have the troops to do what we helped them do. And if you asked them, did they do a good job, you’re going to get a resounding “Yes.” That’s what’s lost in all this.
Q: We’ve been talking in clinical terms, but does KBR have a message for the plaintiffs? Whether they’ve suffered any health maladies, or fear them, or just have endured a long time in the courtroom?
A: I’d give you two responses regarding the people who serve. We respect that service. It was not easy duty over there for anybody. The conditions were harsh. It was hard on everyone.
We would say we respectfully disagree that they’ve actually been harmed. Our perspective is that these people are displaying the symptoms that are not unique. They’re the same as everybody who served in Iraq. The real problem here is we have a plaintiff’s expert who has created an illness and a process, and basically scared them into believing they’ve been exposed, when in fact, they haven’t.
Our message is we hope they’re better. We hope that it works out. They’re good people who served their country.
Q: One of the things the plaintiffs made an issue of was that there wasn’t that much direct conversation between KBR and the soldiers on the ground. I realize they weren’t yours to command, but in retrospect, do you think that you should have been more open and not merely relied on conversations with a few guys from the Corps of Engineers?
A: First, there’s a false assumption that there was something to communicate to them. This exposure is a creation of the plaintiffs’ lawyers. If you sat through those proceedings, you know this stuff isn’t powder. It’s not like talcum powder. This was a granular material that you couldn’t inhale if you had to. The only time it turns into a powder was basically in the waste areas, in the ponds where you’d have runoff that would dry. So the idea that they were actually exposed to harmful levels, there’s just no medical or scientific proof of that.
Second, when we realized there was a potential for exposure, we went back and immediately told (the Corps of Engineers.) There was a town hall meeting to discuss it on more than one occasion. The chief guy in charge of this for the Corps was at the site within 24 hours and wrote a report on it. I’m not certain, when we’ve done what they told us, what is the message that we’re supposed to deliver to these people when the Corps thinks what we’ve done is appropriate and they don’t believe there’s an exposure?
Q: I’ve talked to guys who aren’t officers and find out later what they were in a place they didn’t understand or word didn’t filter down to them. Has anything about the rules of engagement for contractors and soldiers changed as a result of this?
A: The right thing to do and our obligation was to make sure the leadership of the military knew and we did that. But the underlying false assumption here is that there was something to tell these guys. The most dangerous thing at this site was leaking chlorine tanks, the first thing they had us remove. And I’m pretty certain the Corps decided not to tell all the Army guys that we’ve removed leaking chlorine tanks.
When we evaluate an exposure case, we look at quantification of the exposure, are we seeing symptoms related to that exposure and is there medical evidence tying the two together? That ultimately leads you to causation. Here, there’s no quantification of exposure, there are no symptoms differentiated from just being in Iraq and I think, at trial no one testified as to express illnesses that were caused, or at least there was no medical evidence to support that. I’ve got to tell you, if this case was tried anywhere but Oregon, it’s a zero.
Q: Why is that? Because the jurors here are sympathetic because these guys are from Oregon?
A: If I knew that, I’d be smarter than I am. I’ve been doing trial work now for 30-plus years and I’ve learned one thing, you should never be surprised. There will be an issue or result that comes out different from what you had planned and you just have to be in it for the long haul. Sometimes you may not win, but that’s just the nature of the beast.
Q: How would you do it differently if you had another trial out here? We had such a stark contrast in expert witnesses’ views. We had one of yours talking about standing in a pure chromium sandstorm for hours before reaching a dangerous threshold. We had somebody on the other side saying “That’s insane, you’d be dead.” That’s an either-or question for a jury. Would you adjust your argument about that?
A: Clearly, there is a disconnect somewhere in the evidence or their understanding of it. Absent a chance to talk to them, it’s kind of hard to figure out where they went off the rail.
They seemed to be willing to assume there was exposure. We think one of the errors in the case is that there was no credible, scientific or medical proof of the exposure, which we think should have been required. Ultimately, the judge or the Court of Appeals is going to have to decide whether that error requires reversal of the verdict.
Q: There’s a lot of generalized anger about everything from the way the war was prosecuted to the role of Dick Cheney in your former parent company, Halliburton. Do you find yourself bucking a headwind in these kinds of reputational issues?
A: You have to talk about the audience. There’s clearly a vocal minority that posts those comments that feels that way. When we look at our investor pool or our clients, we don’t get that same negative feedback. When we look at jurors, this is really the first indication that that negative aura or approach had some traction. But the cases we’ve tried in Texas and elsewhere, we haven’t seen that bleedover.
Q: The Oregon delegation has been pretty interested in this case. Have you ever had any conversations with Senator Wyden or anybody else here in government?
A: They have never contacted us, nor asked for confirmation or evaluation of any single fact. Not before, not now, not since.
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on Jan 7 2013. Filed under KBR Lawsuits, Oregon Live, Qarmat Ali Blog, Qarmat Ali Case Update.
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