Hawaii’s dominant shipping carrier to pay $9 million to settle federal allegations

By Malia Zimmerman | Watchdog.org

HONOLULU — Matson Navigation Co. Inc., Hawaii’s largest cargo container shipping company, will pay $9.95 million as part of a settlement agreement with the U.S. Department of Justice and Illinois freight consultant Mario Rizzo.

Rizzo, who in 2010 filed lawsuit under False Claims Act in the U.S. District Court in California on his behalf, and the federal government’s, claimed the company, and Hawaii’s other major cargo container shipping company, Horizon Lines, improperly billed the U.S. Department of Defense, costing $2 million a year in damages.

Matson allegedly billed the government for ocean transport fuel charges when rail was used for some portions.

The government receives $9 million, and Rizzo will be awarded the remaining $950,000 for court costs and attorneys fees. The government will then award Rizzo a little more than $2.5 million from its settlement.

Michael Hansen, president of the Hawaii Shippers Council, said the settlement between Matson and the U.S. Department of Justice “vindicates” whistleblower Rizzo and his attorneys who pursued the lawsuit for nearly four years.

Hansen said the DOJ declined to intervene in the case, leaving the burden of the litigation on Rizzo and his attorneys, substantially reduced their prospects to prevail.

“Despite the denial of all whistleblower allegations by the defendants Matson and Horizon Lines on the basis that they were subcontractors and not subject to the government’s terms of carriage limiting the application of fuel surcharges on inland and overland freight charges, the whistleblower and his attorneys were able to pierce the contracting veil at least with respect to Matson,” Hansen said. “It remains to see what the outcome of the lawsuit will be in respect of Horizon Lines, which continues to face severe financial difficulties operating in an insolvent condition for over the past three years and continuing to post losses on quarterly and annual basis.”

Matson is the subject of two other federal investigations that could also lead to fines.

A federal grand jury subpoenaed Matson in October 2013 seeking documents about the release of thousands of gallons of molasses into Honolulu Harbor. Matson also has received written requests for information regarding the spill from the state Department of Health, Office of Hawaiian Affairs, and the U.S. Environmental Protection Agency.

In September 2013, Matson released more than 220,000 gallons of molasses into the harbor and nearby Ke’ehi Lagoon, killing 26,000 fish, swamping recreational swimmers and stalling fishermen and boating operations in the harbor.

Matson also was subpoenaed by the U.S. Justice Department’s anti trust division — the agency investigating pricing practices of ocean carriers — in April 2008 for documents and information relating to water carriage.

The subpoena was issued in connection with the ongoing U.S. Justice Department’s investigation into the pricing and other competitive practices of carriers operating in the domestic trades, including the Alaska, Hawaii and Guam trades.

Horizon Lines, Inc., which transports containerships between the continental United States and Alaska, Hawaii, Guam, Micronesia, and Puerto Rico, finalized its settlement with the U.S. Justice Department after an extensive probe into alleged price fixing and antitrust charges in 2011, agreeing the company would pay $15 million over 5 years for the violations, down from the original $45 million fine, for federal antitrust violations in the Puerto Rico tradelane.

Both Matson and Horizon control the cargo container shipping market in Hawaii under the Jones Act, a 1920 federal law that requires American owned and manned ships transport goods and services between American ports.