United States ex rel. Holbrook v. Brink's Co.

336 F.Supp.3d 860

UNITED STATES of America, EX REL. Brian D. HOLBROOK, Plaintiff,

v.The BRINK'S COMPANY, et al., Defendants.

Case No. 2:13-CV-873

United States District Court, S.D. Ohio, Eastern Division.

Signed August 20, 2018

Subodh Chandra, Ashlie Case Sletvold, Donald P. Screen, The Chandra Law Firm, LLC, Cleveland, OH, David S. Stone, Jason S. Kanterman, Pro Hac Vice, Stone & Magnanini LLP, Berkeley Heights, NJ, for Plaintiff.

Nelson Eugene Genshaft, Paul Walter Leithart, II, Strip Hoppers Leithart McGrath & Terlecky Co., LPA, Columbus, OH, Edward A. Cohen, Pro Hac Vice, Thompson Coburn LLP, St. Louis, MO, J. David Duffy, Pro Hac Vice, Thompson Coburn LLP, Chicago, IL, for Defendants.

OPINION & ORDER

ALGENON L. MARBLEY, UNITED STATES DISTRICT JUDGE

This matter is before the Court on the Motion for Summary Judgment of Defendant Brink's Incorporated ("Brink's") (ECF No. 121) and the Motion for Partial Summary Judgment of Plaintiff/Relator Brian D. Holbrook (ECF No. 123). For the reasons that follow, the Court GRANTS Brink's Motion and DENIES Mr. Holbrook'. This case is hereby DISMISSED.

I. BACKGROUND

A. Factual Background

Mr. Holbrook filed this qui tam action, alleging violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729, against his former employer, Defendant Brink's Incorporated. (ECF No. 1). Brink's is an armored carrier company which provides a host of coin-related services to its clients—which include both private banks and Regional Federal Reserve Banks ("RFRBs")—including storing, transporting, sorting, and wrapping coins. (ECF No. 122-1 at 1).

1. The Coin Terminal Agreement

Brink's, like many armored carriers, entered into agreements with certain RFRBs called "Coin Terminal Agreements" ("CTAs") in which Brink's agreed to transport and store a certain quantity of coin from the RFRB without charge. (Id. at 4-5). This was a mutually-beneficial arrangement: Brink's and other armored carriers provide these services gratis to the RFRBs "in exchange for access at the armored carrier terminals to Reserve Bank coin inventories, which significantly reduced the transportation expenses incurred by the armored carriers in obtaining the coin from Reserve Bank locations."¹

Brink's had a CTA with the Federal Reserve Bank of Cleveland (hereafter, "RFRB"), which acknowledged the mutual desire of both parties for "Brink's to maintain an inventory of Bank-owned coin in a vault or similarly secure storage compartment or area at its facility...." (ECF No. 26-4).

Brink's agreed to "handle bank-owned coin only for the purpose of, and in accordance with the requirements set forth in this agreement," and acknowledged that "title to Bank-owned coin shall at all times remain with the Bank and Brink's shall have no right, title or interest therein." (Id. at ¶ 1). The agreement also strictly limited the movement of Bank-owned coin in Brink's care. The CTA acknowledges that there may be situations in which it would be convenient for Brink's to deliver coin to or receive coin from a competing armored carrier or to a non-customer bank, but it is permitted only with the mutual consent of the Bank, and if Brink's reports such transfers the same day to the Bank. (Id. at ¶ 2(c) ). Further, the only time in which the CTA permits Brink's to "remove bags of coin from the Bank's designated storage area" is for the purpose of "opening the bags and wrapping the coin for pending delivery to a Mutual Customer ..." (Id. at ¶ 9).

Brink's receives coin from the RFRB in penny, nickel, dime, quarter, half-dollar and dollar denominations, but the CTA only requires Brink's to weigh incoming bags of Bank-owned coin in the dime, quarter, half-dollar and dollar denominations and report to the Bank if the bags of coin are not within "Weight Tolerances set forth on Appendix E." (Id. at ¶ 3). According to the July 20, 2010, testimony of the Director, Division of Reserve Bank Operations and Payment Systems, "[t]he Reserve Banks stopped routinely weighing penny and nickel deposits in 2003 after determining that the costs exceeded the benefits of doing so. Instead the Reserve Banks give depository institutions credit on deposits of coin on a ‘said to contain’ basis." Upon receipt, the Bank-owned coin accepted for the "Bank's inventory shall be stored at the Facility in a vault or similarly secure compartment or area." (ECF No. 26-4 at ¶ 6).

The CTA outlines procedures for ensuring the RFRB is apprised of the location and amount of bank-owned coin stored at Brink's facilities at all times. For example, Brink's is tasked with retaining "documentation to show in reasonable detail at any given point in time accountability for Bank-owned coin," notifying the RFRB of the "dollar value and denomination of coin ordered for shipping to Mutual Customers," and sending the RFRB daily "Customer Inventory Reports...of its close-of-the-day inventory." (Id. at ¶¶ 6, 10, 13). Further, the RFRB can conduct periodic, unannounced inspections "for the purpose of inspecting the Bank's inventory and verifying that Brink's is receiving, counting, weighing, storing, handling, disbursing, shipping and/or transferring Bank-owned coin in accordance with the requirements of [the] Agreement." (Id. at ¶ 14). The CTA further provides for the exchange of receipts as Bank-owned coin is transferred between both entities:

Brink's liability and responsibility hereunder shall attach and commence when a shipment of Bank-owned coin is received into its possession upon Brink's giving a receipt therefore and shall continue until the property has been delivered to and receipted by the Bank or any other authorized consignee.

Id. at ¶ 13.

Neither party disputes that although Brink's maintained electronic records as to the coins in its inventory, the physical coins were commingled and not segregated by customer. (ECF Nos. 122 at 3; 128 at 7-8). Brink's indicated that coin stored at its terminals was "commingled, [and] regarded as general stock.... [P]hysical coins held by Brink's were not segregated by customer" and Brink's had no knowledge of the origin of the coins once they were deposited in the terminal. (ECF No. 122-1 at 4). Furthermore, neither party disputes that the RFRBs were aware of and consented to the commingling of coin. Indeed, the Vice President of the RFRB gave deposition testimony indicating that the RFRB "did not interpret or intend that the CTA (Exhibit 2) in effect between 2006-2009 be interpreted as requiring the [RFRB]'s coin to be held, stored or returned (1) based upon any intrinsic value that some coins may have had or (2) based upon any concern with metallurgical value. It would be factually incorrect to interpret the CTA as suggesting that coins are not to be treated as legal tender and/or not to be exchanged at face value; rather, coins under the CTA are to be treated in a fungible manner as legal tender." (ECF No. 122-9).

2. The Penny-Swapping Allegations

Brink's also provides coin services to customers such as Coinstar, an entity that operates kiosks at which individuals can exchange loose change for cash. (ECF No. 122-1 at 2). Coinstar's business model involves monetizing a large quantity of pennies, which in turn, created storage problems for Brink's at its coin terminals. (Id. ). In 2006, another corporation—Jackson Metals—approached Brink's with a business proposition: it offered to purchase Coinstar's pennies through Brink's as an intermediary, sort though the pennies, cull out pennies that were minted prior to 1982 (which are of high metallurgical value due to their high copper content) and replace them with pennies minted after 1982 (which are mostly made of lower-value zinc). (Id. ). Jackson Metals and Coinstar ultimately contracted with each other and typically operated in the following manner: "(1) Jackson Metals would identify a Brink's coin terminal with large amounts of Coinstar pennies in inventory; (2) Jackson Metals would contact Coinstar to arrange a purchase of the coins; (3) Jackson Metals would wire payment to Coinstar for a shipment of pennies (usually a tractor-trailer load or $66,000 worth of pennies); (4) Brink's personnel typically would set aside pennies from Coinstar shipments without depositing them into Coinstar's bank account; (5) Jackson Metals would pick up these pennies from the Brink's terminal identified by Coinstar and take them back to the Jackson Metals facility; (6) Jackson Metals would run the pennies through its sorting machines to cull out the older copper pennies from the newer pennies made primarily of zinc; and finally, (7) Jackson Metals would deliver the zinc pennies it had amassed (but did not want or need) to a Brink's coin terminal for deposit into Jackson Metals' bank account at Huntington Bank." (ECF No. 122-1 at ¶ 12.). Some subset of Jackson Metals penny acquisitions did not follow this procedure. That subset involved even exchanges of zinc pennies for circulated pennies from the vaults. (ECF No. 122 at 5-6). It is undisputed that the RFRB coin accounted for between 10 and 42 percent of the total penny inventory held by Brink's at its terminals. (ECF No. 123-2 at 103). It is therefore possible that the swaps sometimes involved coin originally deposited by the RFRB. There is no definitive evidence in the record, however, to prove that the swaps involved or impacted any RFRB accounts.

3. Alleged Harm to the Government

On December 14, 2006, the United States Mint announced the enactment of new regulations prohibiting the melting and limiting the exportations of pennies and nickels with the goal of preventing a shortage of small change in circulation. See 31 C.F.R. §§ 82, et seq. The rules became final on October 29, 2007 and extend through 2014. The Secretary of the Treasury propounded this regulation after determining that

to protect the coinage of the United States, it is necessary to generally prohibit the exportation, melting, or treatment of 5-cent and one-cent coins minted and issued by the United States. The Secretary has

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