Custer Battles

Custer Battles

Industry	Defense contractor
Founded	October 2001
Founder	Scott Custer and Michael Battles
Defunct	2006
Headquarters	Middletown, Rhode Island , United States
Area served	Iraq

Custer Battles, LLC was a U.S.-based defense contractor with headquarters located in Middletown, Rhode Island and additional offices in McLean, Virginia. The firm is no longer operational. Originally, the company claimed to provide a range of services including security operations, litigation support, global risk advisory, training programs, and business intelligence; however, it lacked prior experience or proven success in delivering these offerings.

In June 2003, Custer Battles entered the Iraqi market as a minor contractor supporting the Coalition Provisional Authority and U.S. government efforts. In October 2004, the company became the subject of a False Claims Act lawsuit—the first of its kind related to Iraq contractors—drawing considerable media scrutiny. A jury ruled against the company in March 2006; however, this verdict was later overturned by a District Court judge. The ruling was appealed, and in April 2009, the Fourth Circuit Court reversed the lower court’s decision and ordered a new trial.

The Iraq War documents leak revealed that in 2004 a convoy belonging to Custer Battles engaged in an incident at Umm Qasr, where they fired upon a civilian vehicle by disabling its tire and discharged five rounds into a crowded civilian minibus. The shooting ceased only after intervention by Iraqi police, port security personnel, and a British military unit. Employees of Custer Battles reportedly paid cash settlements to avoid formal disciplinary measures.

Background

Established in October 2001, Custer Battles, LLC was named after its founders Scott Custer and Michael Battles. Custer brought experience as a former Army Ranger and defense consultant, while Battles was an ex-Army officer and CIA intelligence operative who had unsuccessfully campaigned for the United States Congress representing Rhode Island in 2002. The company presented itself as follows: "Custer Battles, LLC, an international business risk consultancy, is a veteran-owned enterprise delivering impartial risk management and security consulting services under strict ethical standards." Their portfolio included services such as global risk advisory, personal security details, weapons training, and investigations into Foreign Corrupt Practices Act (FCPA) compliance and human rights concerns.

Between 2001 and 2003, the firm provided crisis management and security support to humanitarian organizations operating within volatile conflict zones worldwide. Notably, they were among the earliest firms to establish operations in Kabul, Afghanistan by January 2002, serving various NGOs as well as the Afghan Ministry of Transportation. Within the United States, their work focused on protecting critical infrastructure with an emphasis on water security. In 2002 alone, they secured at least four statewide contracts across New Hampshire, Rhode Island, Maine, and Nevada, along with agreements involving multiple municipalities along the East Coast.

By May 2003, Custer Battles had set up operations in Baghdad, Iraq. The following month they won a competitive contract valued at $16.8 million to provide security services for Baghdad International Airport (BIAP) under the auspices of the Coalition Provisional Authority. Over a 12-month period, they expanded their Iraqi presence as a minor subcontractor employing approximately 138 personnel tasked with airport security.

Throughout 2003 and 2004, the company broadened its operations in Iraq with clients including the Coalition Provisional Authority, BearingPoint, Washington Group International, Parsons Corporation, Halliburton, and the United States Army. Early in 2004, the United States Department of Defense launched an inquiry into one of their CPA contracts which led to Custer Battles being suspended from future government contracting opportunities. By early 2005, the firm had terminated its activities within Iraq.

Dinar Exchange Agreement

Between May 2003 and June 28, 2004, the Coalition Provisional Authority (CPA) served as the interim governing entity in Iraq. In July 2003, the CPA initiated a currency replacement program, phasing out the old Iraqi dinars featuring Saddam Hussein’s image in favor of a new design. On August 27, 2003, Custer Battles, LLC. entered into a Dinar Exchange Agreement with the CPA to establish and manage three currency exchange centers located in Baghdad, Mosul, and Basra. This contract was structured as a Cost-Plus arrangement, reimbursing actual expenditures plus an additional 25% for overhead and profit. Upon signing, Custer Battles received a $3 million advance via a U.S. Treasury check; throughout the contract duration, the CPA disbursed roughly $15 million to the company. Subsequently, the CPA obtained documentation indicating that Custer Battles had inflated billing amounts—for instance, charging $400,000 for electrical generators at the Baghdad site when their purchase price was only $74,000.

In October 2004, Robert Isakson and William Baldwin, employees of DRC, Inc.—a subcontractor for Custer Battles—filed a qui tam lawsuit against Custer Battles, LLC. This case was unsealed in the United States District Court for the Eastern District of Virginia. The complaint, titled United States ex rel. DRC, Inc. v. Custer Battles, LLC, 472 F. Supp. 2d 787 (E.D. Va. 2007), was brought under the False Claims Act and accused Custer Battles of extensive overcharging on two contracts with the Coalition Provisional Authority during 2003.

In July 2005, Judge T. S. Ellis III determined that the allegations of fraudulent claims within Custer Battles’ contracts with the CPA were valid under the False Claims Act, rejecting arguments from Custer Battles’ legal team that no contractual relationship existed between their client and the U.S. government. Additionally, Judge Ellis ruled that funds disbursed from the Development Funds for Iraq (DFI) were outside the purview of the False Claims Act since they were not administered by the U.S. government. In March 2006, a jury found Custer Battles responsible for submitting five false claims—each subject to civil penalties ranging from $5,000 to $11,000—and also identified 26 false statements supporting those claims. Nevertheless, in August 2006, Judge Ellis overturned this verdict as a matter of law.

The Fourth Circuit Court of Appeals partially reversed Judge Ellis’s decision in April 2009, concluding that claims submitted by Custer Battles did fall within the scope of the False Claims Act and effectively reinstated the jury’s verdict. Judge Paul V. Niemeyer, in United States ex rel. DRC, Inc., et al. v. Custer Battles, LLC, et al., 562 F.3d 295 (4th Cir. 2009), found that the District Court had erred by restricting potential damages related to the dinar exchange contract and allowed plaintiffs to pursue a new trial seeking additional damages; this ruling reinstated claims connected to the dinar exchange agreement and overturned limits on damages capped at $30 million, thereby granting entitlement to further litigation for compensation.

Security Operations at Baghdad Airport

A Custer Battles K-9 unit tackles a man in a protective suit during a training session at Baghdad International Airport, 2003.

Apart from the Dinar Exchange Contract, the Coalition Provisional Authority (CPA) awarded Custer Battles a distinct Firm-Fixed Price agreement valued at $16.8 million to secure Baghdad International Airport and facilitate its reopening for commercial air traffic. Under this contract, Custer Battles was tasked with setting up armed patrol units and checkpoints, developing an airport police force, and certifying baggage screening personnel—totaling 138 staff members. Franklin D. Hatfield, the Coalition Authority’s transportation administrator, praised the company for exceeding contractual expectations.

The identical group of whistleblowers, Robert Isakson—formerly with the Federal Bureau of Investigation and managing director of DRC—and William Baldwin, an ex-employee of Custer Battles, alleged under the False Claims Act that Custer Battles defrauded the U.S. government by failing to maintain the required number of security personnel at the airport. Baldwin further claimed he was terminated in retaliation for reporting these issues.

During litigation, Judge T. S. Ellis III determined that the entire contract fell under the scope of the False Claims Act, rather than only portions as previously decided. The central accusation was that Custer Battles did not supply sufficient security staff as stipulated in their $16.8 million Firm-Fixed Price contract. In January 2007, Judge Ellis granted summary judgment favoring Custer Battles, citing lack of evidence supporting false claim submissions. This ruling was upheld in April 2009 by the Fourth Circuit Court of Appeals regarding the Baghdad airport contract. Consequently, claims related to this contract were dismissed legally; however, allegations concerning the Dinar Exchange Contract and Baldwin’s retaliation claim linked to the airport contract advanced to trial.

Lawsuit Filed by Custer Battles Alleging Conspiracy

In April 2005, Custer Battles initiated legal action against whistleblowers Robert Isakson and William Baldwin, accusing them of conspiracy and breach of contract. The lawsuit extended to their companies—DRC Inc and American Iraqi Solutions Group (AISG), both based in Alabama. Court filings submitted to the U.S. District Court for the Eastern District of Virginia assert that Isakson violated his contractual obligations by transporting his 12-year-old son into Iraq from Amman, Jordan by vehicle with $9,000 in cash strapped to his chest.

Additionally, Custer Battles charged that Isakson and Baldwin conspired to establish AISG and unlawfully diverted clients away from Custer Battles. The case was later transferred to the U.S. District Court for the Southern District of Alabama. Prior to trial commencement, the parties reached a confidential settlement agreement resulting in dismissal of all charges by Custer Battles. The financial terms agreed upon remain undisclosed.

Claims of excessive force

In February 2005, Lisa Myers from MSNBC News published a report highlighting accusations that security personnel employed by Custer Battles in Iraq used excessive force. The article featured statements from four former employees who claimed to have witnessed a Custer Battles vehicle collide with a civilian car, resulting in injuries to those inside. Additionally, these witnesses described an event where Kurdish guards allegedly fired indiscriminately at Iraqi civilians. Bill Craun, one of the former staff members, remarked that "the American public would not tolerate what we observed."

Following these allegations, Myers conducted interviews with Custer Battles’ Iraq director and convoy commander. Shawn Greene, the convoy leader, firmly denied the occurrence of such events and provided a detailed account of the incident involving the Custer Battles truck striking a civilian vehicle. Greene acknowledged that while his vehicle caused damage to the civilian car, no individuals were harmed. Paul Christopher, serving as the company’s country director, granted NBC News access to mission logs documenting the event, including photographic evidence and statements from the driver and witnesses confirming the absence of injuries. Both Greene and Christopher recounted genuine combat situations where Custer Battles personnel faced attacks from insurgents and had to respond with lethal force to protect themselves.

Jacqueline Battles detained over alleged fund concealment

In September 2006, Jacqueline Battles, spouse of Michael Battles, was taken into custody in Germany after authorities were alerted by a German bank about "suspicious transactions" linked to her accounts. Approximately US$1 million was confiscated by investigators from her accounts. Following her arrest, Jacqueline Battles was released without any formal charges being filed.

Legal proceedings

• United States ex rel. DRC, Inc. v. Custer Battles, LLC ("DRC I"), 376 F. Supp. 2d 617 (E.D. Va. 2005) — partial granting of the motion.
• United States ex rel. DRC, Inc. v. Custer Battles, LLC, 472 F. Supp. 2d 787 (E.D. Va. 2007) — district court ruled that the relator did not prove proper claim submission.
• United States ex rel. Rory Mayberry v. Custer Battles, LLC, Case No. 1:06-cv-364 (E.D. Va. 2008) — complete dismissal of the case.
• United States ex rel. DRC, Inc., et al. v. Custer Battles, LLC, et al., 562 F.3d 295 (4th Cir. 2009), Case No. 07-1220 — appellate court allowed plaintiffs to pursue a new trial option.

In the media

• Daylight Robbery: fleecing Iraq and the USA. BBC Broadcast on June 10, 2008.
• Billions Wasted In Iraq? By Jennifer MacDonald/Ira Rosen, CBS Broadcasting. Aired February 12, 2006.
• U.S. contractors in Iraq allege abuses: Four men say they witnessed brutality. Report by Lisa Myers and the NBC investigative unit, featured on NBC Nightly News. Broadcast February 17, 2005.
• I'm From the Private Sector and I'm Here to Help. Produced by Nancy Updike for This American Life. Aired June 4, 2004. This episode explores the involvement and intentions of Custer Battles as a contractor in Iraq, including interviews with Hank Keirsey, a retired Army Lieutenant Colonel and a prominent figure in Absolutely American by David Lipsky.

References

Documents

• United States Ex Rel. Drc, Inc., Robert J. Isakson And William V. Custer Battles, Llc Et Alia. Case No.: CV-04-199-A
• United States ex rel. DRC, Inc., et al. v. Custer Battles, LLC, et al. Case No. 1:04cv199
• Senate Democratic Policy Committee. "An Oversight Hearing on Waste, Fraud and Abuse in U.S. Government Contracting in Iraq". Statement of Senator Byron L. Dorgan, February 14, 2005.
• The False Claims Act and War Profiteering. Prepared Statement of Senator Chuck Grassley of Iowa, Senate Committee on the Judiciary, Combating War Profiteering: Are We Doing Enough to Investigate and Prosecute Contracting Fraud and Abuse in Iraq? Tuesday, March 20, 2007

Articles

• "Court Revives Suit Over Iraq Work", Ellen Nakashima, The Washington Post, April 11, 2009. Accessed June 2, 2009.
• "I'm From the Private Sector and I'm Here to Help", an NPR This American Life episode featuring Custer Battles.
• "Contractor Faces False Claims Act Liability for Payments Made by Iraq's Coalition Provisional Authority", Laura Thomson, Construction Weblinks, April 20, 2009. Accessed June 2, 2009.
• "Cleared of war profiteering, he fights to restore honor", John Mulligan, Providence Journal, February 22, 2007. Retrieved February 22, 2007.
• "Judge Clears Contractor of Fraud in Iraq", Dana Hedgepeth, The Washington Post. Retrieved February 22, 2007.
• "Military Contractor Exonerated", The Washington Times, February 9, 2007. Retrieved February 10, 2007.
• "Judge Sets Aside Verdict of Corporate Fraud in Iraq", Eric Eckholm, The New York Times, August 18, 2006. Retrieved February 10, 2007.
• "Memos Warned of Billing Fraud by Firm in Iraq", Eric Eckholm, The New York Times. Late Edition - Final, Section A, Page 1, Column 1. October 23, 2004. Accessed May 2, 2005.
• "Contractor accused of fraud in Iraq", T. Christian Miller, Los Angeles Times. October 9, 2004; also published in The Seattle Times. Accessed May 2, 2005.
• "Small Business Succeeds Amid Chaos and Danger", Neil King Jr., The Wall Street Journal, August 2004. Retrieved February 10, 2007.
• "Security worker killed in Iraq", BBC News, April 9, 2004. Accessed April 9, 2004.

External links

• Custer Battles, LLC, accessed April 9, 2004; the company ceased operations in 2009. Refer also to the Internet Archive version.