Submitting a False Claim & Calculating Government
A party who has been found to have submitted a false claim, or
who has caused the submission of a false claim to the United States
False Claims Act is liable for a civil penalty of not less than
$5000 and not more than $10,000 plus three times the amount of
damages that the Government sustains , 31 U.S.C. Section 3729(a).
Although the False Claims Act is not new and the application
of this formula may appear to be straight forward, exactly how
these damages are calculated can depend on in which federal
judicial circuit the false claims action was brought.
Benefit of the Bargain Analysis in False Claims
The courts can look at different measures in order to
determine the amount of damages. Generally, the courts use a
"benefit of the bargain" analysis in false
claims cases. In other words, as is done in many breach
of contract cases, they look at the difference in value between
what the government received and what it paid. Where the
goods or services received by the government have a market value,
that amount is then compared to the market value the product would
have had it met the government's requirements . Where the
goods or services did not provide any tangible benefit, and any
intangible benefit cannot be valued, as, for example, where
the government funded scientific research, damages to
the government are measured by the amount the government paid for
the false claim, U.S. ex rel. Feldman v. van
Gorp, 697 F.3d 78, 87-88 (2d Cir. 2012);
see, U. S. ex. rel Longhi, 575 F.
3rd 2009); United States v.
Science Applications Int'l Corp., 626
F.3rd 1257, 1279 (D.C. Cir
Gross Trebling Approach vs. Net Trebling
A further issue that arises is the question of what is
trebled. The answer to this question has led to two different
results, a "gross trebling" approach or a "net
trebling" approach. In the gross trebling approach, the
court trebles the amounts paid by the government and then subtracts
any value received by the government. In the net trebling
approach, any amounts or value the government has received is
subtracted from the amount the government has paid and the result
is then trebled. The difference between gross trebling and
net trebling is significant. Assume that as a result of false
claims, the government paid $300,000 for services that had a value
of $185,000. A comparison of the two methods illustrates the impact
of these different methods of damage
- Gross Trebling (300,000 x 3) minus
185,000 equals 715,000
- Net Trebling (300,000 minus
185,000) x 3 equals
The gross trebling approach is the one that the government
has long advocated and applied. In doing so, the United
States and the Department of Justice rely on a decision of
the Supreme Court in United States v.
Bornstein, 423 U.S. 303, 314 (1976) where
the court agreed that False Claims Act "damages should
be [multiplied] before any compensatory payments are deducted
because that method of compensation most faithfully conforms to the
language and purpose of the Act" . This view has also been accepted
by the Ninth Circuit, United States v.
Eghbal, 548 F.3rd 1281, 1285
(9th Cir. 2008).
In a recent case, however, the Seventh Circuit
rejected the government's approach to calculating damages,
United States v. Anchor Mortgage Corp., 711
F.3rd. 745 (7th
Cir. 2013). The court found that the defendants
provided false information with regard to a number of residential
mortgage loans insured by the Federal Housing Administration (FHA).
The trial court had adopted the gross trebling damage calculation.
The appellate court disagreed, holding that a net trebling approach
should be used with the government's damages, before trebling,
being "the amount paid on the guarantee less the value of the
collateral", id, at
751. In doing so, based on its interpretation of
a footnote, it read Bornstein to
support the net trebling approach . The Anchor court
rejected the conclusion of Eghbal.
Even though there is a split in the circuits on this
issue, the Justice Department did not appeal the
Anchor decision. We can certainly
expect that defendants in false claims cases will assert that the
Anchor court reached the correct conclusion and that
net trebling is the correct way to calculate damages. Plaintiffs,
of course, will argue that net trebling is the correct method to be
used in assessing damages.
Contact Us To
If you have discovered evidence of government fraud,
contact an experienced False Claims Act attorney before blowing the
whistle. You may be entitled to a substantial reward and the legal
protections afforded to whistleblowers under state and federal
laws. The attorneys of Berger & Montague are nationally
recognized experts in Whistleblower/Qui Tam actions with over a
decade of experience pursuing these complex fraud cases. For more
information or to schedule your confidential consultation, use the
form on this page or call us at 1-800-424-6690.
For further reading:
False Claims Act's
"Alternate Remedy Provision" & the SEC "Related Action"
and Protection for Whistleblowers
False Claims Cases to take Action On
The Federal and State False Claims Act & Whistleblower
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