MOBILE, Ala. (WALA) – A former employee of a now-defunct business went to court Thursday to make his case that the Honduras and some U.S. officials defrauded taxpayers amid a contract dispute after Hurricane Mitch.

But before Chief U.S. District Judge Kristi DuBose gets into the merits of the case, she made clear that she first must decide if the accusers legally are allowed even to move forward.

And that could be a substantial hurdle, as even their attorney acknowledged outside the courtroom.

“It is. … But I think today’s presentation clarified a lot of the issues that were involved,” attorney Willie Huntley said. “I think that the judge specifically picked up on a number of those issues. And if she resolves those in our favor, the case will get to go forward.”

A lawyer for the Department of Justice, meanwhile, laid out his case for dismissing the suit.

DuBose did not immediately rule on the matter. She gave both sides a chance to submit additional written arguments.

The lawsuit, filed in 2017, relates to the False Claims Act. That allows private citizens act as whistleblower and expose fraud against the government. If successful, they are eligible for a portion of the money recovered on behalf of taxpayers.

Murray Farmer and John McAvoy

Murray Farmer (left) and John McAvoy talk to reporters in Mobile, Alabama, on Thursday, Jan. 16, 2020, after a federal court hearing on their allegations of fraud against the government of Honduras and some U.S. officials. (Guy Turnbow/FOX10 News)

The case involves allegations that the government of Honduras failed to pay Mobile-based DRC Inc. for work it did in that country in the early 2000s following Hurricane Mitch in 1998.

The case is complicated, but the issue boils down to questions over the Honduran Social Investment Fund, the agency that DRC contracted with to build sanitation systems. After years of failing to pay the $17.7 million contract, or a $51 million judgment issued by an arbitration panel, Honduras contended that the agency – known by its Spanish acronym FHIS – was not part of the Honduran government.

The Honduran Supreme Court ruled against DRC, and U.S. District Judge Paul Friedman in Washington cited that ruling in 2014 when he dismissed a separate lawsuit that DRC filed against Honduras there.

Justice Department trial attorney Jay Majors argued Thursday that the issues raised in the current lawsuit already have been litigated.

“As we read Judge Friedman’s opinion, he ruled FHIS is a separate legal entity … with a degree of independence from the Honduran government,” he told DuBose. “We see Friedman’s opinion as simply articulating a principle that always had been known and understood.”

But Huntley said the lawsuit is appropriate because it raises issues of fraud. He said that if FHIS is not a government agency – as the federal judge in Washington and the Honduran government maintained – then it violated U.S. aid rules for it to receive some $250 million in U.S. assistance.

“Your honor, I can summarize it in two words – fraud and lies,” he said in court.

He added: “For all of the time this was going on, they were saying FHIS was the government; FHIS is the government. … If FHIS is not part of the government, they can’t get a grant. A government-to-government grant is not possible.”

There is little doubt about the impact that the dispute had on DRC. Once a thriving disaster recovery and construction firm, it fell apart in 2013. Nearly 300 people in Mobile lost their jobs.

Majors argued that the U.S. Agency for International Development, the government agency in charge of distributing aid, has rejected the contention that FHIS was ineligible to receive the government assistance. He maintained that the federal government has the discretion to make that determination in a lawsuit like this, which is filed on behalf of the United States.

Allowing the litigation to proceed would cause the government to expend resources monitoring the case and improperly put it on both sides of the dispute – as both the technical plaintiff and arguing on the behalf off the defense.

The judge also raised questions about whether it is appropriate for the courts to second-guess the determination that the government has made.

“Aren’t you essentially saying the United States was wrong in their interpretation of who they can contract with?” DuBose asked at one point.

Murray Farmer, one of the Mobile residents put out of work after DRC failed, expressed confidence outside the courtroom.

“I think we proved the case today to show her that if the government’s corrupt, it obviously cannot be trusted – the decision that the government makes cannot be trusted,” said Farmer, who oversaw the contract for the company in Honduras. “So, we just can’t trust them.”

Farmer characterized the federal government’s position as a cover-up.

“They don’t want me to expose their corruption,” he said.

John McAvoy, a retired U.S. Foreign Service employee who oversaw the contract for the American government at the time, testified that it was “wrong on many levels” for USAID to authorize the Honduran government to use $100,000 in U.S. aid to pay for legal fees to fight DRC in court.

McAvoy, who initiated the lawsuit with Farmer and one other man, said outside the courthouse that Honduras and USAID are trying to have it both ways on the question of whether FHIS is part of the Honduran government.

“The government of Honduras came to the United States and said, “Oh, look, this really isn’t the government. It’s a non-government entity,’” he said. “Well, at that point, USAID should not have not funded them as a non-governmental agency.”

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