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
Showing posts with label treble damages. Show all posts
Showing posts with label treble damages. Show all posts
Monday, April 1, 2013
Sunday, May 20, 2012
D.C. Circuit Overturns Long Held Requirement That False Claims Act Relator Make Disclosure to Goverment Before Public Disclosure of Same Allegations
Whistleblowers Protection Blog recently wrote about the the District of Columbia Court of Appeals overturning its earlier ruling in U.S. ex rel Findley v. FPC-Boron Employees Club, 105 F.3d 675 (D.C. Cir. 1997). In that case, the D.C. Circuit had held that to be "an 'original source' [in a False Claims Act case] a whistleblower must make his or her disclosure to the government before there is any public disclosure of the same allegation." In U.S. ex rel Davis v. District of Columbia, No. 11-7039, May 15, 2012), the D.C. Circuit relied on the Supreme Court's ruling in Rockwell International Corp. v. United States, 549 U.S. 457 (2007), to reject the view, found in Findley, that a "relator could provide nothing new after a public disclosure." Noting that the False Claims Act has been changed to further clarify who can be an original source (see 31 USC 3730(e)(4)(B)), the Court held "[a]pplying the 1986 version of the Act, we will no longer require a relator provide information to the government prior to any public disclosure of allegations substantially similar to the relator's and will instead enforce the text's deadline of 'before filing an action.'"
Davis is a odd case and with an unsympathetic relator. In the other part of the case, the Court sustained the District Court's ruling that the relator, Davis, was not entitled to treble damages and that the relator had failed to allege any actual damage to the United States. Davis had been an accountant to the District of Columbia Public Schools ("DCPS") and his firm prepared Medicaid reimbursement claims made by DCPS to Medicaid for 1995 - 1997. Apparently, DCPS replaced the realtor's firm with another in 1998, and the other firm submitted the DCPS Medicaid reimbursement for 1998. According to Davis, however, DCPS submitted it claims without the required documentation since "only [Davis] had the required documentation supporting the claim and he never gave it back to DCPS." DCPS subsequently received a Medicaid reimbursement of over 10 million , but most of that amount had to be returned to Medicaid after an auditor found that the DCPS 1998 claim had "not been adequately documented." Four years after the Auditor's Report on the 1998 claim, Davis filed a qui tam against DCPS and the District of Columbia alleging that they had improperly submitted the 1998 Medicaid reimbursement claims without proper documentation -- thus the issue about whether he could be an original source.
Davis, the Court observed, did not allege in his suit that any of the claimed services were not provided to the DCPS or that any costs were exaggerated --in short, he did not allege that the government has suffered any damage as a result of the alleged lack of documentation. In fact, "[b]ecause all agree that the services paid for were provided, the maintenance of documents to prove that they were has no independent monetary value. This is the rare case in which there is no allegation that what the government received was worth less than what it believed it had purchased. . . . . The government got what it paid for and there are no damages." The Court noted that Davis may still be entitled to "share" in any statutory penalties assessed against the District.
In view of the lack of damages, this case sounds like a great waste of time for everyone, and it appears to be an strange vehicle for the Court to change it position that a relator can still be an original source even if the relator approaches the government after disclosure. The relator's conduct in Davis certainly does not justify such a change.
A. Brian Albritton
May 20, 2012
Davis is a odd case and with an unsympathetic relator. In the other part of the case, the Court sustained the District Court's ruling that the relator, Davis, was not entitled to treble damages and that the relator had failed to allege any actual damage to the United States. Davis had been an accountant to the District of Columbia Public Schools ("DCPS") and his firm prepared Medicaid reimbursement claims made by DCPS to Medicaid for 1995 - 1997. Apparently, DCPS replaced the realtor's firm with another in 1998, and the other firm submitted the DCPS Medicaid reimbursement for 1998. According to Davis, however, DCPS submitted it claims without the required documentation since "only [Davis] had the required documentation supporting the claim and he never gave it back to DCPS." DCPS subsequently received a Medicaid reimbursement of over 10 million , but most of that amount had to be returned to Medicaid after an auditor found that the DCPS 1998 claim had "not been adequately documented." Four years after the Auditor's Report on the 1998 claim, Davis filed a qui tam against DCPS and the District of Columbia alleging that they had improperly submitted the 1998 Medicaid reimbursement claims without proper documentation -- thus the issue about whether he could be an original source.
Davis, the Court observed, did not allege in his suit that any of the claimed services were not provided to the DCPS or that any costs were exaggerated --in short, he did not allege that the government has suffered any damage as a result of the alleged lack of documentation. In fact, "[b]ecause all agree that the services paid for were provided, the maintenance of documents to prove that they were has no independent monetary value. This is the rare case in which there is no allegation that what the government received was worth less than what it believed it had purchased. . . . . The government got what it paid for and there are no damages." The Court noted that Davis may still be entitled to "share" in any statutory penalties assessed against the District.
In view of the lack of damages, this case sounds like a great waste of time for everyone, and it appears to be an strange vehicle for the Court to change it position that a relator can still be an original source even if the relator approaches the government after disclosure. The relator's conduct in Davis certainly does not justify such a change.
A. Brian Albritton
May 20, 2012
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