Ruckh v. Salus Rehabilitation: Eleventh Circuit Reinstates Most of Huge False Claims Act Verdict

Dear Readers:

Just recently, the Eleventh Circuit largely overturned the District Court’s decision in US and State of Florida ex re Ruckh v. Salus Rehabilitation, LLC, et al. In that non-intervened qui tam, the District Court overturned the jury’s verdict in favor of the relator and with it a $347 million judgement against the defendants. See my Jan. 29, 2018, blog post,“Discerning the True Meaning of Escobar: the remarkable case of US ex rel Ruckh v. Salus Rehabilitation.”

The District Court’s decision was a dramatic one. For lack of a better phrase, it was a legal “bang” to awaken the public and the legal community to the punitive impact of False Claims Act (FCA) verdicts on a vulnerable industry such as Florida nursing homes. Ruckh, as I observed in my previous blog post: 

“does so much more than apply a simplistic Escobar analysis of whether the government would have objected to this or that individual billing practice or paperwork errors--what I would call a retail analysis of disputed practices. Rather, acknowledging the punitive nature of the FCA’s treble damages and penalties, the Court evaluates the materiality of defendants’ disputed practices in light of ‘common sense’ and the impact of an FCA judgment would have on the delivery of nursing home care to a large, vulnerable population. For the Court, the ‘controlling question’ is essentially whether the government would effectively shut down 53 nursing homes on the basis of what appears to be paperwork errors–-what the court calls ‘traps, zaps and zingers’--about which the government ‘has permitted . . . to remain in place for years without complaint or inquiry.’”

Well, that’s all over now. The Eleventh Circuit (the Court) ignored the sweeping language of the District Court and the broader questions it posed about determining materiality. We are back to a “just the facts, ma’am” type of approach. The Court did not look at the larger questions, at least with regard to Medicare and the liability of the management company that did not submit the claims at issue. Instead, it largely focused on whether this or that type of billing practice would have caused Medicare to pay more than it should and, if so, whether there was sufficient evidence for the jury’s verdict.

The Court upheld most of the jury’s verdict. It found that the Defendants, 53 skilled nursing facilities and their management company, violated the FCA by submitting 420 allegedly fraudulent Medicare claims. The fraudulent Medicare claims arose from “upcoding” and “ramping,” which is the “artificial timing of services to coincide with Medicare’s regularly scheduled assessment periods.”  Once the matter is returned to the District Court, we can anticipate the District Court entering a judgment in excess of $255 million in favor of the relator and the government.

The District Court’s Ruling On Medicare and Medicaid Claims

According to the District Court, determining if a defendant’s disputed act or practice is material to the government required a far broader context and circumstance than simply whether the government would object to this or that individual disputed practice.  For both the Medicare and Medicaid clams at issue, the District Court found that the “evidence and the history of this action establish that the federal and state government regard the disputed practices with leniency or tolerance or indifference.” The District Court observed that “relator’s evidence” proved that these “disputed practices” were not material. This is because “Medicaid and Medicare consistently paid ‘in the mine run of cases’ despite Medicare’s routine audits and Medicaid’s knowledge of billing and documentation deficiencies.”

The Eleventh Circuit’s Ruling On Medicare Claims

The Eleventh Circuit, though respectful, was not having any of that. The jury ruled “the evidence at trial permitted a reasonable jury to find that the defendant’s committed Medicare-related fraud . . . through the use of two improper practices: upcoding and ramping.”

As to materiality, the Eleventh Circuit simply declared that “[c]ontrary to the district’s decision, these types of affirmative representations are material.” The Court did not cite any authority to support its statement. Rather, determining materiality was simple: upcoding caused Medicare to pay the defendants “higher amounts than they were truly owed. This plain and obvious materiality went to the heart of the [skilled nursing facilities’] ability to obtain reimbursement from Medicare.” “Ramping,” the Court explained further, “causes Medicare to reimburse at a higher level than it would had the [skilled nursing facilities] reported the appropriate level of services. Like upcoding, ramping is material as it goes to the essence of the parties’ economic relationship.”

The Eleventh Circuit rejected the District Court’s alternative order for a new trial. It sustained the jury’s single damages for $85,137,095 on the Medicare claims. It instructed the District Court to enter judgment on those claims after applying trebling and statutory penalties.  The Court further sustained the jury’s finding that even though the management company did not submit the claims, it was responsible for “causing” false claims to be presented for payment. Having not previously addressed the “appropriate standard to prove causation in FCA ‘cause to be presented’ actions,” the Court held that “proximate causation” was a “useful and appropriate standard by which to determine whether there is a sufficient nexus between the defendant’s conduct and the submission of a false claim.”

The Eleventh Circuit's Ruling on Medicaid Claims

Surprisingly, the Eleventh Circuit found that “no jury could have reasonably concluded that the defendants defrauded Medicaid.” It upheld the District Court’s judgement as a matter of law on those claims. The relator based her Medicaid fraud claim on the defendant’s “failure to prepare and maintain comprehensive care plans” for the nursing home residents. The Court acknowledged that Florida’s Medicaid regulations:

• Require that skilled nursing facilities are “responsible for developing a comprehensive plan of care for each resident”

• Instruct that “Medicaid payments for services that lack required documentation or appropriate signatures will be recouped”

• Caution providers to submit “true and accurate claims” and to certify that billing information is “true, accurate and complete.”

The relator argued at trial that Florida “would or could automatically deny payment if the state were to discover care plans were missing.”

The Eleventh Circuit found that there was “no evidence that the state ever declines payment for, or otherwise enforces, these types of violations.” Citing Escobar, the Court noted that was “very strong evidence that those requirements are not material.” The relator’s “scant evidence,” the Court observed, “supported only the conclusion that care plans are, at most, labeled as conditions of payment under Medicaid regulations” and is “without more…insufficient to establish materiality.” The Court also concluded that the relator’s “implied certification theory of liability” for its Medicaid fraud claims failed as well. “Implied certification claims,” the Court explained, must be founded not only on a request for payment. The claims also must make “specific [false] representations about the goods or services provided.” The relator, however, failed to “connect the absence of care plans to specific representations regarding the services provided” and “without more, the failure to create and maintain plans cannot serve as a basis for FCA liability.”

Why did the Eleventh Circuit Rule Differently on Medicare and Medicaid Claims?

The Eleventh Circuit does not explain how the defendants’ Medicare billing practices were material but defendants’ Medicaid billings were not. I believe the Court’s analysis is based on the difference between how these services were billed at the time. Medicare, the Court observed, reimbursed the skilled nursing facilities services on a “fee-for-service model” in which Medicare pays the skilled nursing facility for providing specific services. The skilled nursing facilities “indicated they had provided more services -in quantity and quality- than they, in fact, provided.” This caused Medicare to pay “higher amounts than they were truly owed.” Basically, it is saying that your bills say you did X, but you really only did Y, and Medicare paid more as a result.

Florida Medicaid, by contrast, only “reimburses SNFs for resident care at a flat daily rate.” That’s the difference, apparently. The Medicaid bill essentially says: residential care provided to patient A on Z date. Now, the requirements for defendants to provide that “care” are contained in the Florida Medicaid regulations. The SNFs must certify generally that they fulfill those requirements. But, I assume the Court’s point is that the relator did not show that Florida Medicaid actually rejected such bills when it discovered or knew that such comprehensive care plans were not provided. Still, there’s something that just does not sit well with that.

And there’s more in the case, such as a lengthy discussion about whether the relator loses standing by entering in an agreement to sell part of her recovering to a litigation funding company – it does not. As to guidance about if a relator can use a sampling to determine liability or if the damages were excessive – readers will have to look other places for that. The Court was not having any of it, finding that defendants either did not raise it or adequately address it.

In sum, the Eleventh Circuit’s decision in US and State of Florida ex re Ruckh v.Salus Rehabilitation, LLC, et al. is rather anti-climactic on the scope of Escobar and how to evaluate materiality of a defendant’s billing practices. Defense counsel will have to look elsewhere for more expansive discussions of materiality and Medicare such as those found in the District Court’s opinion.

A. Brian Albritton

July 15, 2020

False Claims Act and Excessive Fines Clause: 4th Circuit Upholds Relator's Decision to Accept Smaller Judgment to Avoid Unconstitutional Result

Just recently, the U.S. Circuit Court of Appeals for the Fourth Circuit addressed whether the penalties assessed against a defendant under the False Claims Act ("FCA") can ever violate the 8th Amendment's protection against "excessive fines" in the appeal, United States ex rel Kurt Bunk & Daniel Heuser v. Birkart Globistics GmbH & Co et al., Case No. 12-1369 (4th Cir. 12/19/2013), a case about which I previously blogged. The 4th Circuit overturned the District Court's decision which had  found the $50 million in penalties to be an excessive fine in light of the government's lack of damages. Essentially, the 4th Circuit avoided the constitutional issue by agreeing to the Relator's offer to accept $24 million in penalties in lieu of the entire $50 million that the District Court believed the FCA required to be imposed on the defendant. A few observations about the decision:

• This FCA case concerned defendant contractors who moved the furnishings of U.S. military service personnel overseas to Europe and whether they colluded with subcontractors, resulting in the defendants charging inflated moving prices to the military. The Court began its opinion by observing, "An army may march on its stomach, but when a fighting force is deployed to a foreign front, familiar furnishings also serve to fuel the foray." These personnel whose goods were being transported were going to "encamp" in Europe. Once the Court characterizes these military personnel as "fighting forces deployed to a foreign front," you know for certain that the defendants will be losing and the court will fudge the constitutional issue.

• One of the Relators, Bunk, who actually prevailed in this action never pled or proved any monetary damages caused by the defendants. The defendants sought to challenge Bunk's standing to bring this action in the absence of any damages, but the 4th Circuit found Bunk had standing.

• Other settling defendants had already paid the government $14 million, which the District Court found "was far in excess of the presumptive damages" which were $895,000. The defendant had already paid that as restitution in a parallel criminal case.

• The 4th Circuit affirmed that penalties were to be imposed on the basis of the false certifications contained in a defendant's claims for payments submitted to the government and that each certification qualified as a false claim giving rise to a penalty. Unfortunately for this defendant, there were 9,136 false claims or bills, and that amount multiplied by the minimal $5,500 penalty came to just shy of $50 million.

• The Court acknowledged that the "perceived tension between the FCA and the Excessive Fines Clause of the 8th Amendment . . . is a monster of our own creation." To its credit, the Court candidly stated that "the FCA as enacted could arguably have been construed as authorizing a total civil penalty not to exceed $11,000." But, the Court observed further that it was following precedent -- bereft of any "our hands are tied" complaints -- in concluding that "FCA liability . . . attaches to the claim for payment."

• The Court avoided a finding that the $50 million in penalties qualified as an excessive fine because the Relator agreed to accept only $24 million. The Relator's "voluntary remittitur," the Court observed, was "just the sort of arrow that a plaintiff is presumed to possess within his quiver" and that a plaintiff's discretion to take a "lesser judgment . . . is virtually unbounded." Here again, the Court relied on a prior FCA case, U.S. v. Mackby, 339 F.3d 1013 (9th Cir. 2003), in permitting this remittitur.

• Essentially, the Court states that a District Court "must permit the government or its assignee [the Relator] the freedom to navigate its FCA claims through the uncertain waters of the Eighth Amendment."

• As for the $24 million, the Court upheld the constitutionality of that amount by apparently disregarding the lack of evidence of any harm and finding that the "notion [that the government suffered no injury] seemingly inconsistent with [defendant's] apparent profit motive in making the statements at issue." The Court went on that "there is no doubt" -- even though the Court cites no evidence otherwise -- that "the government has suffered significant opportunity costs from being deprived of the use of those funds for more than a decade."  

• Finally, as mentioned above, the $24 million was not viewed as violating the Excessive Fines clause because it was not "grossly disproportionate" to the crime against the military. "The prevalence of defense contractor scams . . . shakes the public's faith in the government's competence and may encourage others similarly situated to act in a like fashion."

In short, given that the victim was the military, there was no way the Court was going find the FCA's penalties to be unconstitutional or use this decision as a vehicle to curb the FCA's excesses. Moreover, there is just something vaguely unsettling about hinging a court's determination of this statute's constitutionality not on its application and consequences, but on what the government and Relator will accept.

A. Brian Albritton

January 1, 2014

Stark Law Violations and the False Claims Act: US ex rel Baklid-Kunz v. Halifax Hospital Medical Center

In the ongoing qui tam case, US ex rel Baklid-Kunz v. Halifax Hospital Medical Center, case no. 6:09-cv-1002-Orl-31 (M.D. Fla.), which I have previously featured, the Court recently granted the Government's Motion for Partial Summary Judgment and found that the hospital's compensation arrangement with several oncologists that it employed violated the Stark Law. As there was a "factual issue" regarding whether the Hospital "knowingly" submitted claims for payment from Medicare or Medicaid arising from these Stark violations, the Court did not find --yet-- that the Hospital violated the False Claims Act. False Claims Act liability based on these Stark Law violations, however, remains a real possibility: if the Court or jury later determines that Halifax "knowingly" submitted claims for payment arising from Stark violations, then it could be subject to hundreds of millions of dollars in treble damages and penalties arising under the False Claims Act.

Halifax Hospital and a recent ruling in another Middle District of Florida case, US ex rel Schubert v. All Children's Health System, Inc., case no. 8:11-cv-01687-T-27, involving a Stark Law violation serving as the basis for a False Claims Act violation, demonstrate the incredible breath of the Stark Law, how easy it can be for hospitals to run afoul of it in compensating physicians, the incredible damage exposure to hospitals, and why such claims are especially attractive to relators seeking to bring False Claims Act cases. For example, the relator in Halifax Hospital is reported to be the hospital's former compliance officer.

The Stark Law, 42 USC 1395nn(a), prohibits physicians from referring Medicare/Medicaid patients to a whole host of business entities or "services," including hospitals, clinical labs, durable medical equipment providers, in which the physician or an immediate family member has a financial interest. In turn, hospitals are prohibited from submitting any claim for payment to Medicare or Medicaid that were furnished as a result of a prohibited referral. For example, if a physician has a "financial relationship" with a hospital that violates Stark and refers Medicare patients to the hospital, the hospital may not bill for any services rendered arising from that referral, regardless of whether the patient needed those services, was otherwise entitled to them, or what the services cost. Now, the reference to "financial relationship" does not refer only to some kind of under the table payment or kickback. Rather, the statute interprets "financial relationship" broadly to include "any arrangement involving remuneration between a physician (or an immediate family member of such physician) and an entity" and includes "any remuneration, directly or indirectly, overtly or covertly, in cash or in kind." 42 USC 1395nn(h)(1)(B).

According to the Court, Halifax Hospital ran afoul of Stark Law by employing six oncologists at the hospital for five years and paying them an "incentive bonus" which turned out to violate Stark Law. The Stark Law permits hospitals and other entities to employ physicians and others who might refer Medicare patients to them provided that a "bona fide employment relationship" exists. Whether an employment relationship is bona fide or not depends in large part on whether the entity, such as a hospital, pays the physician "consistent with the fair market value of the services," without regard to the "volume or value of any referrals made by the physicians, as reflected in a "commercially reasonable agreement." 42 USC 1395nn(e)(2). Basically, Halifax Hospital's incentive bonus for its oncologists turned out to be too generous and thus did not satisfy the bona fide employment exception. As a result, Halifax Hospital was prohibited by Stark from submitting Medicare claims for its services that were furnished pursuant to referrals from these ineligible oncologists employed by the hospital.

As a result of Halifax's violations, the Government sought reimbursement of $27,102,000 in Medicare payments generated as a result of these improper referrals. The Hospital did not have any way of lowering this damage figure. By that, I mean the Hospital cannot claim that the referrals were really warranted regardless of the improper bonus; that the bonus payment was immaterial to whether the referral for services was appropriately made; that services were really provided or needed; or that damages were the difference in value between normal referrals that comply with Stark and referrals allegedly made as a result of Stark violations. No, the result is particularly harsh because the services provided were simply not eligible for payment based solely on the ineligible referral source.

The Court found that Stark Law violations can give rise to False Claim Act liability if a hospital or other provider who accepted the illegal referral "falsely certified compliance with the Stark Law" in connection with submitting a claim to a federally funded insurance program such as Medicare. If, as the Government contends in Halifax Hospital, the Hospital is found to have violated the False Claims Act by submitting claims for payment arising from Stark Law violations, then the $27 million damage will be trebled and the hospital would additionally be subject to fines of $5,500 to $11,000 for each separate billing or claim submitted to Medicare. Damages could easily exceed $100 million. One press report stated that the Government was seeking damages in excess of $750 million. 

A. Brian Albritton
December 4, 2013

Qui Tam Relators Objecting to Government Ability to Pay Settlements in False Claims Act Cases

Relators are increasingly objecting to "ability to pay" settlements negotiated by the government with defendants in qui tam cases, and in so doing, accuse the government of treating them unfairly and of sending a message of lax False Claims Act enforcement.  In an "ability to pay" settlement, the government permits the defendant to pay less than the amount of the False Claims Act loss due to the defendant's lack of financial resources. The False Claims Act provides for treble damages and a penalty of between $5,500 to $11,000 for each false claim. In many such cases, False Claim Act damages are nothing short of ruinous and can easily bankrupt a defendant. See e.g., Crowell and Moring table listing FCA settlements for 2000 - 2013.


In the Wellcare case, for example, a relator's counsel described the $137.5 million dollar qui tam civil settlement that was based on the company's limited ability to pay as "grossly inadequate," and claimed that his call for increased damages was only intended to "deter any effort by companies such as Wellcare to take advantage of the health care system or the people who should be served by this system."

Another recent case illustrates how bitter the relationship between relators and the government can become when the government settles for less than what relators believe they deserve. In United States ex rel Stone v. Hospice of the Comforter, 6:11-Cv-1498-Orl-22DAB, M.D. Fla., the government recently settled a case on ability to pay grounds over the objection of the relator. In that case, the government settled with the defendant for $3 million payable over five years and required that the defendant be subject to a Corporate Integrity Agreement. Payments accelerated in the event the company was sold. See settlement agreement, relator's objections, the government's brief.

The relator refused to sign the settlement agreement which he described as a "travesty." In his objections, the relator complained bitterly that damages caused by the defendant exceeded $30 million, that the government was "shoving" the defendant through a "loophole," and that the defendant was attempting to "pull the wool over everyone's eyes." "The proposed settlement," the relator argued, "will result in champagne corks popping" at the defendant's "receiving a 15% slap on the wrist amortized luxuriously over 5 years."

Relators have some recourse to the court when they object to the government's settlement of a qui tam that they filed. The False Claims Act provides that the government may settle an action with the defendant over the relator's objections "if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances." 31 U.S.C. 3730(c)(2)(B). The circuit courts, however, have not passed on the standard to be applied to determine whether a settlement of a False Claims Act qui tam case is fair, adequate, and reasonable. As the District Court observed in Hospice of the Comforter, only a handful of district courts have addressed the question on the standard to be used, and they "are aligned on opposite sides of a fault line over whether the government is entitled to any deference when it intervenes in a False Claims action and reached a settlement with the defendant." The Court explained that the "majority of courts seem to afford the government little, if any, deference" because they apply the standard used in evaluating and approving class action settlements. See Federal Rule of civil Procedure 23(e).  

Contrary to the class action standard, the government in Hospice of the Comforter argued that the Court should apply a "highly deferential standard" whereby the government's settlement will be affirmed as long as it can "articulate a legitimate government purpose that is rationally related to the proposed settlement." The government contended further that "standards governing class actions  . . . are inapplicable to qui tam actions. In class action litigation, the named plaintiff represents the interests of absent class members who have independent claims against the defendant. In FCA qui tam litigation, the relators has suffered no independent harm [and] . . . . . is merely advancing a claim on behalf of the United States for harm to the United States."  

In the end, the District Court in Hospice of the Comforter did not adopt a standard, but overruled the relator's objections on the grounds that that the settlement satisfied both standards. See Court's Order Overruling Objections.

It is said that the government loves its relators, and the relationship between them becomes quite close when an investigation commences as a result of a qui tam filing and the government intervenes. Yet, when the government settles a case on the basis of the defendant's ability to pay, the relator-government relationship often sours and relators may come to accuse the government of selling out and sending defendants the "wrong signal." With a bit of editorial license, it appears that William Congreve's maxim applies here: "Heav'n hath no rage like love to hatred turn'd, Nor Hell a fury, like a [relator] scorn'd." 

November 11, 2013
A. Brian Albritton

 

Contract Damages in False Claims Act Cases: the 7th Circuit Adopts a Net Trebling Approach to Calculating Damages

The Seventh Circuit recently adopted a common sense "contract damages" approach in assessing damages in False Claims Act cases: United States v. Anchor Mortgage Corporation, 2013 WL 1150213 (7th Cir. March 21, 2013). Essentially, the Court counseled that in awarding damages in a False Claims Act case, the "net damages," or damages from which the value of any collateral or mitigation are subtracted, should first be calculated before the damages are trebled as provided for by the False Claims Act.

In Anchor, the District Court found the defendants, a corporation and its CEO, liable under the False Claims Act for lying in connection with applying for federal loan guarantees. Pursuant to 31 U.S.C. 3729(a)(1), the Court imposed treble damages in the total amount of $2.7 million. Using one loan guarantee as an example, the District Court began with the amount paid to the lender under the guarantee, $131,643.05, trebled it for a total of $394,929.15, and only then subtracted from that amount the value of the mortgaged security for the failed loan,$68,000, for a final trebled damage figure of $326,729.15, to which the Court added the $5,500 statutory penalty. The Court followed this same method for each of the 11 loan guarantees at issue.

The Seventh Circuit characterized this method as a "gross trebling approach" and it contrasted this method of calculating damages with what it called a "net trebling approach." In a net damage calculation, the value of the security is subtracted from the loss before it is trebled. Applied to the guarantee above, the net trebling approach would subtract the value of the security, $68,000, from the amount of the overall loss, $131,643.05, and then treble that net amount, to reach a total of $190,329.15 to which the $5,500 penalty would then be added.

The Seventh Circuit observed that while the "False Claims Act does not specify either a gross or a net trebling approach," the FCA also does not "signal a departure from the norm [for damages] -- and the norm is net trebling." Adopting the method used for calculating breach of contract damages, the Court stated: "Basing damages on net loss is the norm in civil litigation. If goods delivered under a contract are not as promised, damages are the difference between the contract price and the value of what arrives. If the buyer has no use for them, they must be sold in the market in order to establish that value. If instead the seller fails to deliver, the buyer must cover in the market; damages are the difference between the contract price and the price of cover. If a football team fires its coach before the contract's term ends, damages are the difference between the promised salary and what the coach makes in some other job (or what the coach could have made, had he sought suitable work). Mitigation of damages is universal."

The Court acknowledged that the Supreme Court's decision in United States v. Bornstein, 423 U.S. 303 (1976) is generally cited for adopting a gross trebling approach in False Claims Acts cases. The Seventh Circuit, however, cited Footnote 13 in Bornstein where the Supreme Court appeared to adopt the "contract measure of loss" which supports a net trebling approach.

In reversing the District Court's damage calculation, the Seventh Circuit instructed the District Court to adopt a net trebling approach, and then explained further that the "United States' loss is the amount paid on the guaranty less the value of the collateral, whether or not the agent has chosen to retain the collateral. The damages should not be manipulated through the agency's choice about when (or if) to sell the property it receives in exchange for its payments."

Overall, the Seventh Circuit has adopted a sensible approach to damages, sorely needed in False Claims Act cases. The Court essentially refused to deviate from the common law approach to damages when the False Claim Act's statutory language did not specify or require a gross trebling method for calculating damages.

A. Brian Albritton
April 1, 2013

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