Thursday, May 31, 2012

US ex rel Davis v. District of Columbia: The D.C. Circuit Extends Benefit of Bargain Damages for FCA Claims

Last week, I wrote about U.S. ex rel Davis v. District of Columbia, a False Claims Act case where the D.C. Circuit sustained the District Court's ruling that the relator was not entitled to treble damages because he had failed to allege any actual damages to the government payor.  The relator in Davis alleged that the District of Columbia Public Schools submitted false claims for Medicaid reimbursement because its claims did not have adequate documentation to support their payment by the government.  The Court, however, ruled that the relator was not entitled to damages because there was "no allegation that what the government  received was worth less than what it believed it had purchased . . . The government got what it paid for."  Essentially, the government received the benefit of its bargain even though the paperwork was inadequate to support the reimbursement claims.

In their recent article, Civil False Claims Act:  D.C. Circuit Reinforces SAIC Decision in False Certification Case, Rejecting FCA Damages Claim in Case Based on Lack of Supporting Documentation, which I commend to you, John Boese and Douglas Baruch at Fried Frank argue that with Davis the D.C. Circuit extended the Court's previous holding on False Claims Act damages announced last year in the case of United States v. Science Applications International Corp., 626 F.3d 1257 (D.C. Cir. 2010) ("SAIC").  The SAIC case was a False Claims Act "false certification" case wherein it was alleged that SAIC violated its contract with the Nuclear Regulatory Commission by falsely certifying that it complied with the regulations forbidding conflicts of interest.  As a result of the false certification by SAIC, write Boese and Baruch, the Justice Department argued at trial "and the jury agreed, that the FCA damages were three times the full amount paid under the contract ($1,973,839.61), even though the actual breach of contract damages were only $78."  The jury awarded the entire amount of SAIC's contract with the Nuclear Regulatory Commission, which was trebled, based on a jury instruction that required the jury to "limit its calculation of damages to the governments payments" and forbid the jury from "attempt[ing] to account for the value of the services, if any, that SAIC conferred upon the Nuclear Regulatory Commission."

The Court found that calculating FCA damages so as to assume that SAIC's services "had no value" in the face of evidence that SAIC had, in fact, provided valuable services to the NRC was error.  Adopting a "benefit-of-the bargain framework,"the Court observed that to "establish damages, the government must show not only that the defendant’s false claims caused the government to make payments that it would have otherwise withheld, but also that the performance the government received was worth less than what it believed it had purchased." (emphasis added).  Boese and Baruch argue that "[t]he Davis and SAIC decisions, as well as other recent decisions rejecting claims for astronomical penalties where no damages have been proven, show that courts are aware of the high stakes in FCA allegations, and are focusing on the actual impact of the underlying false claims, rather than imposing grossly disproportionate damages that ignore the actual benefits obtained by the government from the conduct at issue."

A. Brian Albritton
May 31, 2012

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