MOBILE, Ala. (WALA) – More than two decades ago, Hurricane Mitch wrecked Honduras.

Then, a contract dispute wrecked a Mobile company hired to help the Central American nation rebuild.

On Thursday, a federal judge in Mobile will hear arguments over a whistleblower lawsuit alleging that Honduras – with the acquiescence of some U.S. government officials – defrauded American taxpayers.

“The United States is refusing to enforce its treaty with Honduras,” said Murray Farmer, one of the plaintiffs in the lawsuit. “And it’s teaching the Hondurans that it’s OK to steal from Americans. And that’s not right.” 

The lawsuit is the latest in a long line of litigation that has bounced around the courts in both countries over more than a decade.

It stems from a $17.7 million contract that Mobile-based DRC Inc. won in 2001 to build 22 water and sewer systems in a country struggling with longstanding poverty and the aftermath of a storm that claimed 7,000 lives there.

But when it came time for DRC to collect, Honduras refused to pay. The company lost a long legal battle and never recovered.

“Oh, the company was over. We lost everything,” said Farmer, who was the company’s project manager in Honduras, overseeing all spending. “The company was broken up and sold in pieces. We used to have an office here on Museum Drive with almost 300 employees, and we lost everything. It was sold for pennies on the dollar.”

Famer and DRC came under suspicion that they had paid a bribe to win the contract. Farmer told FOX10 News that he believes a losing competitor might have leveled the allegation, and he added that it probably prompted the Honduran government to withhold payment initially.

The U.S. Agency for International Development, which gave hundreds of millions of dollars in aid to Honduras, took the bribery allegations seriously. Farmer said federal investigators subjected him to 22 audits in five years and three criminal referrals. One of those included a search warrant.

“They took the pictures of my kids off my desk,” he said.

Still, no payment

All that scrutiny failed to turn up any evidence of wrongdoing, however, and the U.S. Attorney’s Office in Mobile in 2007 sent Farmer’s lawyer a letter clearing him.

Still, though, Honduras would not honor the contract. So, DRC pressed its case before an arbitration panel in that country. In 2009, that panel sided with DRC and ordered the Honduran government to pay more than $51 million.

But then Honduras shifted tactics, arguing that the Honduran Social Investment Fund – the agency that DRC contracted with – was not a government agency but a separate legal entity. The U.S. Department of Justice agrees, comparing it to quasi-independent agencies in the United States that are not under the direct control of the executive branch, like the Securities and Exchange Commission.

DRC contract signing

Carlos Roberto Flores, then president of Honduras, signs a contract in 2000 with DRC Inc. to build water and sewer systems in the hurricane-ravaged country. 

The Honduran Supreme Court in 2013 sided with the government, ruling that it did not have to enforce the arbitration order.

A federal judge in Washington, D.C., cited that decision in 2014 in ruling against DRC in a lawsuit against Honduras.

That finding is the central issue the whistleblower suit Farmer and two others filed in 2017.  If the Honduran Social Investment Fund isn’t a government agency, they argue, then it was illegal for the Honduran government to certify that it was all those years that it was receiving U.S. aid.

Farmer filed the suit under a law that encourages citizens to expose fraud against the government. Farmer argues the conduct of Honduras not only hurt his company but defrauded American taxpayers since the U.S. government financed the hurricane relief efforts through economic aid.

If successful, the plaintiffs would get a share of any damages ordered by the court. But Farmer, who now works as a real estate developer, said that is not his motivation.

“This is not about money,” he said.  “I couldn’t care less about the money. … The best thing I can do is pray this doesn’t happen to somebody else and to fight as hard as I can for the truth, and to make sure it doesn’t happen again.”

U.S. takes Honduras’ side

Even though the federal government stands to benefit if the suit succeeds, however, it had taken the side of Honduras. The Department of Justice has asked Chief U.S. District Judge Kristi DuBose to throw out the suit. Government lawyers argued in a recent court filing that the allegations “lack merit” and that the facts “do not support” the claims.

Jay Majors, a trial attorney for the Justice Department, wrote that USAID has determined that the Honduran Social Investment Fund was legally eligible to receive U.S. assistance even though it was separate from the Honduran government.

“The United States investigated the allegations,” Majors wrote. “The facts do not support … claims here.”

The Justice Department also raised concerns of international relations. Proceeding, the government argues, could have “negative effects upon the diplomatic relationship between the United States and Honduras.”

That rationale drew scorn from John McAvoy, a retired U.S. government employee who oversaw the DRC contract for the U.S. government. He said it is “corrupt” that for the sake of relations with Honduras, the U.S. government would side against citizens from its own country.

“To me, that’s the ultimate deep state, swamp corruption, where the Department of Justice knows for a fact that there has been a false claim in the tune of hundreds of millions of dollars.” 

“To me, that’s the ultimate deep state, swamp corruption, where the Department of Justice knows for a fact that there has been a false claim in the tune of hundreds of millions of dollars,” said McAvoy, who is also a plaintiff in the whistleblower suit.

Farmer express particular resentment over a decision in 2006 by USAID to “decommit” almost $2.8 million in aid to Honduras – money the Mobile man says should have gone toward the DRC contract – and allow $100,000 of it to be used to cover the legal defense of the Honduran Social Investment Fund

“I feel betrayed by my government,” he said.

McAvoy, a 26-year veteran of the federal government, said U.S. policy encourages corruption in Central America. He pointed to an October conviction in New York of Juan Antonio “Tony” Hernández, the brother of current Honduran President Juan Orlando Hernández, on cocaine trafficking charges.

The president has not been charged with a crime, but federal prosecutors in New York have referred to him as a “co-conspirator” in court filings, accusing him of using drug money to help win elections in 2013 and 2017.

“This is the person that we have to protect so that he won’t get mad at us diplomatically?” McAvoy said.

He criticized the Justice Department for not even bothering to try to prove the assertion that siding with an American company would harm relations.

DRC work

A promotional video prepared by the now-defunct DRC Inc. shows workers from the Mobile, Alabama, contracting firm working on a project in Honduras after Hurricane Mitch. A lawsuit contends the country's failure to honor the contract cost some 300 Mobile workers their jobs. 

“To me, it’s a lie,” he said. “It’s the deep state and the swamp protecting their own interests. And they don’t care about the U.S. taxpayer. They don’t care about the money. It’s not their money. It’s play money to these government bureaucrats.”

All content © 2020, WALA; Mobile, AL. (A Meredith Corporation Station). All Rights Reserved.

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