Sixth Circuit Severely Narrows Available Damages Under the False Claims Act02.15.16
The Sixth Circuit has once again narrowed the damages available to the government in False Claims Act (FCA) cases. Coming almost three years after U.S. ex rel Hobbs v. MedQuest, the Sixith Circuit recently rejected what it described as the “fairyland” computation of damages in U.S. ex rel. Brian Wall v. Circle C Construction, LLC. This case involved the construction of warehouses at Fort Campbell to pay Davis-Bacon Act damages. The relator alleged the Prime Contractor (Circle C) failed to pay wages to an electrical sub. Following a bench trial on damages, the trial court found for the government, awarding actual damages of $259,000, then trebling them under the FCA for a total award of $777,894.
The Circuit court disagreed, specifically rejecting the government’s “tainted” claim theory. The court focused on the fact that the government got the buildings it wanted and uses them to this day. Because of that, the court stated the actual damages must be the difference between what the government wanted and what it got – here the difference between the wages paid and the wages that should have been paid – or $9,916, which the Court trebled to $29,748.
While the immediate ramifications of this decision will be felt in the contracting fraud arena, it also has major implications for FCA cases alleging healthcare fraud and abuse. Not only has the court rejected the government’s contention that the measure of damages must be the full amount of the claim, but the court also implicitly adopts the netting theory advanced by other circuits. Under that theory, damages are multiplied pursuant to the FCA only after “first subtracting any offset, such as any gains that the government realized or any amount of damages that were successfully mitigated” (United States v. Anchor Mortgage Corp., 711 F.3d 745 (7th Cir. 2013). For example, in a case where the allegations concern the use of a higher level of care or more treatment than is medically necessary netting requires the government to offset the damages by the cost of the treatment that should have been provided before any FCA multiplier is applied.