No Damages Under FCA When Government Gets What It Pays For

by McDermott Will & Emery
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[authors: Sarah Preis and Jennifer R. Taylor]

In United States ex rel Davis v. District of Columbia, No. 11-7039, 2012 WL 1673655 (D.C. Cir. May 15, 2012), the U.S. Court of Appeals for the D.C. Circuit rejected a qui tam relator’s request for baseline damages amounting to the entire amount the government paid the defendant, and instead held that the relator was not entitled to any damages.  Davis could have an impact on how damages are calculated in implied false certification suits where a defendant fails to comply with a condition of payment, yet provides adequate services.  At a minimum, Davis reinforces prior precedent in the D.C. Circuit indicating that a False Claims Act (FCA) plaintiff can only recover the full value of payments made to the defendant if the plaintiff proves it received no value from the product or services delivered.    

Background

The FCA provides, among other things, a cause of action against one who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to an officer, employee or agent of the United States, or to a contractor, grantee or other recipient under certain circumstances.  31 U.S.C. § 3729(a)(1)(A),(b)(2)(A)(i).  A plaintiff or relator must show the defendant submitted a claim to the government and the claim was false.  The FCA defines “knowingly” as a person who has actual knowledge of the information; acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information.  31 U.S.C. § 3729(b)(1)(A)(i–iii).  No proof of specific intent to defraud the government is required.  31 U.S.C. § 3729(b)(1)(B).

The FCA allows private persons to bring suit for violations of the FCA on behalf of the government.  Such suits are called “qui tam” lawsuits and the private party bringing the action is referred to as a “relator.”  If the government decides to intervene in the lawsuit, then it is primarily responsible for conducting the action.  When the government intervenes, the relator is generally entitled to 15 percent to 25 percent of the amount recovered by the government.  If the government chooses not to intervene, then the relator is generally entitled to 25 percent to 30 percent of the government’s recovery.  Successful qui tam plaintiffs may also be entitled to attorneys’ fees and other costs. 

Violators of the FCA are liable to the government for a civil penalty of no less than $5,500 and no more than $11,000 (the statutory amount adjusted for inflation) plus three times the amount of damages sustained by the government.

Certain federal courts have accepted an implied certification theory of liability, permitting liability when defendants do not comply with a legal requirement that is “material” to the government’s decision to pay the claim.  Under this analysis, all payments from the government could be calculated as part of the damages award—even when the government received adequate services and had no evidence of false or over billing. 

United States ex rel. Davis v. District of Columbia

In United States ex rel. Davis, the relator alleged the District of Columbia and its public school system (DCPS) violated the FCA by submitting a Medicaid reimbursement claim without adequate supporting documentation because the government would not have paid the claim had it known about the failure to maintain supporting documentation.  The relator sought damages amounting to the full amount the government had paid the defendant during the relevant time period, which would have been trebled in accordance with the statute.

The D.C. Circuit affirmed the dismissal of the relator’s claims for treble damages and conspiracy because he failed to allege the government suffered actual damages.  The aim of the FCA is to restore the government to the position it would have been in if the claim had not been false.  Thus “[t]o 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.”  The court noted the sole defect claimed by the relator was the failure to maintain documentation for services—he did not allege any claimed services were not provided or any costs had been exaggerated.

The court characterized Davis  as “[t]he rare case in which there is no allegation that ‘what the government received was worth less than what it believed it had purchased’.”  Likening the circumstances to a server’s failure to bring a receipt for dinner where the diner is properly charged, the court concluded “[t]he government got what it paid for and there are no damages.”  Although the court affirmed the dismissal of the relator’s claims for treble damages, it noted the relator could still be entitled to statutory penalties assessed against the District if he ultimately proved his claims.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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