Delma Pallares: Whistleblower Helped Feds Catch Guy Who Ripped Off Troops Is Still Fighting

Berg & Androphy attorneys (from left) Sarah Frazier, Joel Androphy and Kathryn Nelson.

​"Jipped," this week's cover story in the Houston Press, explores the case of American Grocers, Inc., a Houston-based company that exports food to the Middle East (working, in part, off military contracts), and its owner, Samir Itani. About five years ago, the government launched an investigation, alleging, among other things, that Itani made money by sending expired food to American troops.

With the help of whistleblower Delma Pallares, a former American Grocers employee, and her attorneys from Houston's Berg & Androphy (pictured right), the government built and made a case against Itani. He was eventually sentenced to two years in federal prison -- criminal charges didn't include the expired food allegations -- and ordered to pay more than $13 million as part of his civil settlement.

It seemed like a happy ending, but it hasn't been so happy for the whistleblower that stuck out her neck to help take down the bad guy. Because even though the government won its case and sent out press releases that publicized the victory, recently unsealed court documents show that the Department of Justice has fought to keep the money to which Pallares is entitled.

"It's a shame," says attorney Joel Androphy. "She took all the risk and the government doesn't want to compensate her for that."

"Jipped," the story of American Grocers

​The government is basically arguing that Pallares didn't provide information directly related to every dime Itani had to pay, even though the original lawsuit filed by Pallares and Androphy accounted for far more than $13.2 million. (That figure was determined by the government, based on Itani's "ability to pay.")

"I'm less critical of Itani. He settled the case and hopefully he'll continue with his business and do it the right way," Androphy tells Hair Balls. "But the government is still doing it the wrong way. [Pallares] would have been better off by telling the government to go screw itself."

But, Androphy says, "The court wasn't going to allow [Pallares] to be victimized a second time, this time by the government."

Judge Melinda Harmon, who presided over Itani's civil hearings, issued a couple of opinions on the Justice Department's position, and the documents provide an interesting glimpse of how the agency deals with whistleblowers. (Entire document included below.)

From one of Harmon's opinions:

[Pallares] is not a parasite seeking a free ride on information obtained by the Government, but at minimum an equal partner, and probably more, in developing the claims against Defendants for the Government's indictment.

...the Government, claiming that it did not want to bankrupt Defendants, settled this suit for far less than its actual or estimated value...even though it allowed the Itanis, who own additional properties, to continue to live in an expensive home in the Memorial section of Houston and to continue in business despite the extensive fraud to which they had pled guilty.

The DOJ's attorney did not respond to these criticisms nor present any evidence that Defendants were unable to pay more.

The judge ordered that Pallares is entitled to 24 percent of the $13.2 million settlement. According to Androphy, the Justice Department attorneys could appeal that ruling, and Androphy would have to continue spending his own money to fight the government.

"It's typical of what goes on in these cases," Androphy says. "The government just beats on you."