Government, Law, and Manufacturing

Auto supplier settles 'false claims' suit by feds for $1.2M

November 5, 2013
| By Pete Daly |
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Auto supplier settles 'false claims' suit by feds for $1.2M
Patrick Miles Jr. Photo via

An auto supplier will pay the United States $1,231,319 to resolve allegations it improperly used a federal grant for manufacturing at the lakeshore, according to U.S. Attorney Patrick A. Miles, Jr. in Grand Rapids.

Miles said today that LG Chem Michigan improperly used a federal grant to pay its Holland plant employees — who were engaged in recreational and volunteer activities, instead of making lithium-ion batteries for electric vehicles, as terms of the grant called for.

The $1.2-million settlement is in addition to $842,189 that LG refunded to the U.S. Department of Energy in January 2013, based on the same allegations, under the federal False Claims Act.

LG did not admit liability as part of the settlement, and the government did not make any concessions regarding the legitimacy of its claims.

In 2010, DOE awarded LG more than $150 million in funds under the American Recovery and Reinvestment Act of 2009 to construct and operate a lithium-ion battery manufacturing plant in Holland.

Sending "a clear message"

The U.S. government alleged that during the first three quarters of 2012, before LG transitioned battery production from foreign sources to the Michigan plant, LG submitted claims to obtain the federal share of wages and benefits paid to domestic workers, who were engaged in non-work activities, such as watching movies, playing games and performing volunteer work on company time.

The government further alleged that in response to government inquiries about the worker activities — and particularly in executives’ written communications to DOE and statements made during a DOE audit — LG failed to fully disclose the number of employees involved in the activities, the nature and scope of the activities and the resulting losses to the government.

Miles said that under the federal False Claims Act, the U.S. can seek up to three times the damages that it sustains, plus statutory penalties, from those who submit false claims for federal funds.

Miles emphasized that the way LG handled the unallowable costs, shortly after the costs were identified, factored into the government’s settlement position in the case.

“Those who receive federal grant funds must deal openly and honestly with the federal government,” Miles said. “This settlement should send a clear message to our corporate citizens: ‘How you respond to a problem can be as significant as the problem itself.’”

Gregory H. Friedman, the DOE Inspector General, said that evaluating “the management of department funds received as part of the 2009 Recovery Act has been a priority of my office. We are pleased that this matter, which involved the expenditure of significant unallowable costs by LGCMI, has been settled.”

This case was investigated by the DOE, Office of Inspector General and the U.S. Attorney’s Office for the Western District of Michigan.

Assistant U.S. Attorney Adam B. Townshend represented the United States.

"Incurred" labor costs

LG Chem Michigan also issued a statement this morning, saying it “cooperated with the government’s investigation and voluntarily produced a significant number of documents to the Department of Justice to assist in its review of the work performed by LGCMI in 2012. In reaching this settlement, LGCMI did not concede or admit liability. LGCMI maintains that any labor costs charged to the Department of Energy during the relevant period of time were incurred by LGCMI in an effort to maintain a qualified workforce in anticipation of production.”

In July 2010, ground broke on the new $303 million LG Chem plant in Holland, with President Barack Obama in attendance, because of the ARRA grant that made it possible.

Battery market

LG Chem Michigan, owned by South Korean industrial conglomerate LG, said in its statement today that it is “continuing to study the market demand for lithium batteries in the United States, so it can pursue additional business opportunities in this country. Despite the continuing challenges presented by the current market conditions, the company remains fully committed to the success of the lithium battery manufacturing plant” in Holland.

The company also noted that, “LGCMI will be making additional investment beyond the original projections of the cost for this project.”

Under terms of the ARRA grant, the Holland plant was supposed to start production in 2012 and be producing batteries at the supply rate of 60,000 electric vehicles per year, by the end of this year.

LG Chem said that it's "looking forward to the first shipments of product to our customer" this month.

The production delay was partly due to lower-than-expected sales of the Chevy Volt, the primary customer for the plant.

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