REVISED July 15, 2009

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 08-20194

No. 08-20306

United States of America, ex rel; ALFRED J LONGHI, JR

Plaintiff - Appellee

v.

UNITED STATES OF AMERICA

Intervenor - Appellee

v.

LITHIUM POWER TECHNOLOGIES INC; MOHAMMED ZAFAR A

MUNSHI

Defendants - Appellants

Appeal from the United States District Court

for the Southern District of Texas

Before HIGGINBOTHAM, BENAVIDES, and STEWART, Circuit Judges.

CARL E. STEWART, Circuit Judge:

In 2002, Alfred J. Longhi, Jr. (“Longhi”), a former employee of Lithium

Power Technologies, Inc. (“Lithium Power”), filed a qui tam suit under the False

Claims Act (“FCA”), 31 U.S.C. § 3729, against Lithium Power and its president,

Mohammed Zafar A. Munshi (jointly, “the Defendants”). In 2005, the United

United States Court of Appeals

Fifth Circuit

F I L E D

July 9, 2009

Charles R. Fulbruge III

Clerk
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2

States of America intervened in the suit. Longhi and the United States of

America (jointly, “the Government”) alleged that the Defendants engaged in an

elaborate pattern of false statements to secure research grants from the federal

government. Ultimately, the district court granted the Government’s motions

for summary judgment on liability and damages. The court awarded nearly $5

million in damages and penalties, and the parties voluntarily dismissed the

remaining claims in the lawsuit. The Defendants moved for reconsideration, and

the district court denied that motion and entered a final judgment. Longhi then

filed a motion for statutory attorneys’ fees, which the district court granted in

full. The Defendants now appeal the district court’s finding of liability, award

of damages, and award of attorneys’ fees to Longhi. We AFFIRM. 

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1982, Congress established the Small Business Innovation Research

(“SBIR”) program. The goal of the SBIR program is to provide research

assistance to small businesses in order to maintain and strengthen the

competitive free enterprise system and the national economy. See 15 U.S.C. §

638(a). Congress directed each federal agency with a research and development

budget exceeding $100 million to establish a SBIR program and to provide some

fraction of its budget to small businesses. 15 U.S.C. § 638(f). Each federal

agency with a SBIR program was charged with selecting awardees for its SBIR

funding. 15 U.S.C. § 638(g). 

The Department of Defense (“DoD”) administers a SBIR program in which

twelve military components participate. The DoD identifies specific research

projects thatitis interested in funding and allows small businesses to seek SBIR

grants for these projects. DoD’s program solicitations explicitly state that

knowingly and willfully making any false, fictitious, or fraudulent statements

or representations may be a felony under the Federal Criminal False Statements
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3

Act, 18 U.S.C. § 1001. After receiving proposals, the DoD selects those that they

perceive offer the best value to the government and nation. The merits of a

SBIR proposal are in part measured by an examination of the applicant’s

qualifications. The DoD specifically considers the: (1) key personnel available

to perform the research, (2) facilities and equipment available to the applicant,

and (3) scope of any previously funded work performed by the applicantthat may

be similar to that proposed. When the DoD selects a proposal for funding, the

agency enters into a contract with the recipient that governs the terms under

which the funds are disbursed. The DoD generally does not verify all of the

information submitted in a proposal, and it depends heavily on the integrity of

SBIR applicants. 

Under the DoD’s SBIR program, there are two types of SBIR grants. A

Phase I research grant is intended for the recipient to determine the scientific,

technical, and commercial merit and feasibility of ideas submitted under the

SBIR program. These grants typically range from $60,000 to $100,000 and cover

at most a nine-month period. If the DoD determines that the Phase I grant

recipient demonstrates that future research may potentially yield a product or

process of continuing importance to the DoD and the private sector, it can award

a Phase II grant. Phase II grants are only available to applicants who previously

received a Phase I award and are aimed at research or a research and

development effort. A Phase II grant is expected to produce a well-defined,

deliverable prototype and typically ranges from $500,000 to $750,000 over a

two-year period. During Phase III of a research and development project, the

applicant is expected to obtain funding from the private sector or non-SBIR

government sources to develop the prototype into a viable product. 

In 1998, Munshi founded a small business, Lithium Power. Lithium

Power designs and manufactures specialized lithium-based batteries for
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1 Suits to collect statutory damages and civil penalties under the FCA may be brought

by the Attorney General or by a private person, known as a relator, in the name of the United

States. An action brought by a relator is commonly referred to as a qui tam action. See 31

U.S.C. §3730(a) and (b)(1). 

4

commercial and government applications. Munshi is Lithium Power’s majority

shareholder, president, chief executive officer, and chairman of the board. 

The Defendants submitted four proposals–two to the Ballistic Missile

Defense Office (“BMDO”) and two to the Air Force–to receive Phase I and II

SBIR grants for research that could lead to the development of very thin

rechargeable batteries. In connection with the four SBIR grants, the Defendants

submitted more than fifty invoices to the BMDO and the Air Force for payment

and received more than $1.6 million. 

Lithium Power’s four SBIR proposals contained the false claims at issue

in this case. In 2000, the relator1in this action, Longhi, joined Lithium Power

as VicePresidentfor Sales and Marketing. During 2001 and 2002, Longhi began

to suspect that the Defendants were defrauding the federal government. He

began documenting what he believed was the Defendants’ pattern of fraudulent

conduct and investigating a means to stop the fraud. In August 2002, Longhi

began working with counsel to prepare his FCA case, and he met with the

Government on September 20, 2002. One month later, Munshi told Longhi that

“due to tough economic times” Longhi would be placed on a three-day work week

beginning November 2, 2002, and receive a 40 percent decrease in compensation.

Longhi informed Munshi that he could not afford the extreme decrease in pay

and needed to sell his Lithium Power stock to raise capital. On November 4,

2002, Munshitold Longhi that he would be laid off within two weeks and offered

to buy Longhi’s stock for between $80,000 and $90,000. On November 6, 2002,

Munshi explained that the stock sale would be the subject of a more detailed

agreement. 
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On November 18, 2002, Longhi filed a qui tam action against the

Defendants to recover statutory damages and civil penalties under the FCA. On

November 21, 2002, Munshi provided Longhi with a copy of the stock sale

agreement. On November 25, 2002, Munshi laid off Longhi. The agreement for

the sale of stock contained a provision stating that Longhi personally agreed to

release the Defendants from pending claims or lawsuits and agreed not to sue

the Defendants for the loss of Longhi’s job. The original covenant also

disallowed Longhi to sue “for any other reason,” but Longhi objected to this

language and it was changed to “for any other matter prior to execution of” the

agreement to sell the stock. The agreement was executed by the parties on

November 29, 2002, eleven days after Longhi filed suit against the Defendants.

Munshi’s wife paid Longhi $80,000 for the stock. 

Longhi’s qui tam action accused Lithium Power of double billing and of

billing for work that was never completed in connection with twenty-one

different contracts. The United States investigated and intervened in 2005 in

connection with Longhi’s allegations pertaining to fraudulent billing on the four

SBIR grant proposals. The Defendants denied Longhi’s allegations, and the

Government failed to uncover evidence that supported Longhi’s allegations. 

On November 9, 2006,the Governmentfiled a motion for partial summary

judgment as to liability and argued that the undisputed record evidence

demonstrated that the Defendants had, at a minimum, shown a reckless

disregard for the truth regarding many ofthe representations in their four SBIR

grant proposals. On December 22, 2006, the Defendants filed a cross-motion for

partial summary judgment. The district court granted the Government’s motion

for partial summary judgment on March 23, 2007. The district court stated that

fraudulently inducing the Government to provide funding for a project could give

rise to FCA liability, even if the statements on particular invoices submitted in
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6

connection with the project were true. The district court explained that the

Government needed only to demonstrate that the Defendants either were

willfully blind to the falsity of the statements or acted with an extreme form of

negligence in making those statements. 

In determining the merits, the district court examined five separate

categories of statements in the Defendants’ SBIR proposals. First, the district

court explained thatthe Defendants’ BMDO Phase II proposal falsely stated that

Lithium Power was incorporated in 1992. Second, the district court concluded

thatthe Defendants misrepresented the key personnel who would be conducting

the research work in three of the four proposals. The district court noted,

however, that the misrepresentations as to key personnel resulted from mere

negligence, and the court discounted this evidence. Third, the district court

determined that Lithium Power knowingly falsified statements regarding its

facilities and equipment. Fourth, the district court concluded that the

Defendants acted with reckless disregard to the falsity of statements by

representing that Lithium Power had cooperative arrangements with the

University of Houston and Polyhedron Laboratories. Fifth, the district court

noted that the Defendants failed to disclose in its Air Force SBIR grant

proposals that Lithium Power had previously undertaken related work in

connection with a BMDO SBIR grant. 

The district court then assessed whether these false statements,

omissions, and misrepresentations were “material.” The district court explained

that under the FCA materiality requires that the false statement in question

have a natural tendency to influence or be capable of influencing a

decisionmaker. The district court concluded that the Government offered ample

summary judgment evidence that the misrepresentations were actually

material. 
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2 The Defendants’ appeal regarding the district court’s finding of liability and damages

award is found in case No. 08-20194. 

3 The Defendants’ appeal regarding the district court’s award of attorneys’ fees is found

in case No. 08-20306. 

7

The Government then moved for summary judgment on damages. The

district court held that the Government suffered damages in the amount of the

grants it paid out to the Defendants in connection with their deceptive

proposals–$1,657,455. The court tripled that amount, as required by the FCA,

and awarded $4,972,365 in damages. The district court rejected the Defendants’

contention that the damages should be reduced to reflect the benefit the United

States received from the battery research that Lithium Power performed. 

The parties stipulated to a voluntary dismissal of the Government’s

remaining claims and the Defendants’ counterclaims without prejudice.

Longhi’s claims regarding the other seventeen contracts, that the Government

did not intervene in, were among those dismissed. The district court entered

final judgment for the Government based on that stipulation. The Defendants

appeal the district court’s finding of liability and damages award.2

On February 5, 2008, Longhi filed a motion for statutory attorneys’ fees

and final judgment. On February 25, 2008, the Defendants objected to Longhi’s

motion on a variety of grounds. Specifically, the Defendants stated that Longhi’s

motion for attorneys’ fees failed to segregate the hours worked by his attorney

on contracts and claims for which Longhi was not the prevailing party (i.e., the

seventeen claims that were dismissed). The district court did not require Longhi

to segregate the time his attorneys worked, and awarded Longhithe full amount

of fees and costs that he requested–$283,765. The Defendants now also appeal

the district court’s award of attorneys’ fees.3
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II. LIABILITY & DAMAGES AWARD

In appealing the district court’s judgment finding the Defendants liable

and awarding damages to the Government, the Defendants make four

arguments. First, they allege that the district court erred in granting the

Government’s motion for partial summary judgment on the merits and finding

that the Defendants violated the FCA. Second, the Defendants argue that the

district court erred in granting the Government’s motion for summary judgment

with respect to damages and finding that the United States was entitled to

recover the full amount of the grant awards paid out to the Defendants and to

receive treble damages. Third, the Defendants allege that the district court

erred in determining that their claims for release and indemnification from

Longhi were against public policy and the text of the FCA. Finally, the

Defendants contend that the district court erred by denying their summary

judgment motions with respect to liability, damages, and the enforceability of

the release and indemnification agreement. We discuss each of the Defendants’

arguments in turn. 

A. Standard of Review

This Court reviews summary judgment orders de novo, applying the same

standards as the district court. Langhoff Props., LLC v. BP Prods. N. Am. Inc.,

519 F.3d 256, 260 (5th Cir. 2008). Summary judgment is proper when “the

pleadings,the discovery and disclosure materials on file, and any affidavits show

that there is no genuine issue as to any material fact and that the movant is

entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c). This Court

resolves any doubts and draws all reasonable inferences in favor of the

nonmoving party. Langhoff Props., 519 F.3d at 260. 
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B. Violation of the False Claims Act

The district court granted the Government’s motion for partial summary

judgment on the merits and found that the Defendants violated the FCA. The

Defendants argue that the district court erred because: (1) with regards to the

BMDO Phase I grant,the misstatement of Lithium Power’s date of incorporation

does not give rise to liability under the FCA because it was an error that

resulted from inadvertence or mere negligence and was not material; (2) with

regards to the BMDO Phase I grant, statements regarding Lithium Power’s

facilities did not give rise to liability under the FCA, because the facilities were

under construction when the Defendants made the statements and were

completed by the time the government funded the proposal; (3) with regards to

all four grant applications, the Defendants’ statements concerning “cooperative

arrangements,” as opposed to “cooperative research arrangements,” with the

University of Houston and with Polyhedron were true and did not give rise to

liability under the FCA, because they had a cooperative arrangement to use

laboratories and scientific equipment, different than a cooperative research

agreement to conduct certain research for a defined time period, and the

statement was not material; (4) with regards to the BMDO Phase I and II grants

and the Air Force Phase II grant, that statements regarding specific personnel

indicated an expectation and wish to hire those individuals, but did not putforth

that the individuals would necessarily accept an offer of employment; and (5)

with regards to the Air Force Phase I and II grants, the Defendants assert that

they properly disclosed the BMDO contracts to the Air Force when submitting

their proposals, because they informed individual Air Force personnel of the

BMDO SBIR grants. Thus, the Defendants request that we reverse and remand

the district court’s grant of the Government’s motion for summary judgment. 
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The Government contends that the district court properly granted

summary judgment in its favor after correctly concluding that the Defendants’

false statements affected the SBIR grant selection process. The Government

argues thatthe Defendants violated the FCA by submitting four SBIR proposals

replete with false statements that gave the DoD the mistaken impression that

Lithium Power was far more qualified than it actually was to engage in the

proposed research. The Government argues that taken individually, “any one

of the falsehoods would suffice to demonstrate a violation of” the FCA. At a

minimum, the Government argues that the Defendants acted with a reckless

disregard for the truth and presented false claims to the DoD, allowing Lithium

Power to secure more than $1.6 million in research grants. The Government

notes that the Defendants maintain that several of its misrepresentations were

made inadvertently. In response, the Government argues that while subjective

inadvertence is relevant to whether the Defendants had actual knowledge ofthe

falsity oftheir statements, itis not relevantto the objective inquiry into whether

the Defendants acted with reckless disregard of a statement’s truth or falsity.

The Government also argues that the Defendants’ repeated false statements

were material to the selection process. The Government explains that because

an applicant’s qualifications are a critical feature of the SBIR evaluation process,

the Defendants’falsehoods had a natural tendency to influence and were capable

of influencing the extremely competitive process for selecting small businesses

to receive SBIR grants. The Government maintains that each false statement

contributed to the impression that Lithium Power was better suited to carry out

the proposed research than it actually was. 

1. Legal Standard for Finding a Violation of the False Claims Act

An individual violates the FCA when he

(1) knowingly presents, or causes to be presented, to an officer or

employee of the United States Government or a member of the
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4 The Defendants argue that Allison Engine Co. is inapplicable to the instant case

because false statements were made to a government contractor and not directly to the United

States. We see no reason why the FCA would require a materiality standard in cases involving

government contractors and not the United States. 

11

Armed Forces of the United States a false or fraudulent claim for

payment or approval; 

(2) knowingly makes, uses, or causes to be made or used, a false

record or statement to get a false or fraudulent claim paid or

approved by the Government; [or]

(3) conspires to defraud the Government by getting a false or

fraudulent claim allowed or paid.

31 U.S.C. § 3729(a). We note that while the underlying fraud that invokes the

FCA differs under § 3729(a),“the statute attaches liability, notto the underlying

fraudulent activity or to the government’s wrongful payment, but to the claim

for payment.” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 785

(4th Cir. 1999) (quoting United States v. Rivera, 55 F.3d 703, 709 (1st Cir. 1995))

(internal quotation marks omitted). 

The FCA defines the terms “knowing” and “knowingly,” which mean

that a person, with respect to information— 

(1) has actual knowledge of the information; 

(2) acts in deliberate ignorance of the truth or falsity of the

information; or 

(3) acts in reckless disregard of the truth or falsity of the

information.

31 U.S.C. § 3729(b). In addition to the requirements found in the text, our

jurisprudence holds that a false or fraudulent claim or statement violates the

FCA only if itis material. See United States ex rel. Thompson v. Columbia/HCA

Healthcare Corp., 125 F.3d 899, 902 (5th Cir. 1997) (stating that the FCA

“interdicts material misrepresentations made to qualify for government

privileges or services”) (citation and quotation marks omitted)); see also Allison

Engine Co., Inc. v. United States ex rel. Sanders, 128 S. Ct. 2123, 2126 (2008)4
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12

(explaining that “a plaintiff asserting a § 3729(a)(2) claim must prove that the

defendant intended that the false record or statement be material to the

Government’s decision to pay or approve the false claim”). 

We have consistently recognized the requirements discussed above, but we

have not yet delineated a succinct test recognizing each element. The Fourth

Circuit has concisely stated these various requirements in one test, which we

adopt today: (1) whether “there was a false statement or fraudulent course of

conduct; (2) made or carried out with the requisite scienter; (3) that was

material; and (4) that caused the government to pay out money or to forfeit

moneys due (i.e., that involved a claim).” United States ex rel. Wilson v. Kellogg

Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008) (quoting Harrison, 176

F.3d at 788) (internal quotation marks omitted); see also United States ex rel.

Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1177-78 (9th Cir. 2006); Cf. United

States ex. rel. Mikes v. Straus, 274 F.3d 687, 695 (2d. Cir. 2001) (utilizing a fivepart test where a violation of the FCA is shown when an individual (1) makes a

claim, (2) to the United States government, (3) that is false or fraudulent, (4)

knowing its falsity, and (5) seeking payment from the federal treasury).

a. False or Fraudulent Statement

In the instant appeal, the Government alleges that the Defendants

engaged in a fraudulent course of conduct by submitting false statements in the

SBIR grant proposals. The Government does not allege that the Defendants

submitted false claims for payment for each SBIR grant proposal. In certain

cases, FCA liability may be imposed “when the contract under which payment

is made was procured by fraud.” United States ex rel. Willard v. Humana Health

Plan of Texas, Inc., 336 F.3d 375, 384 (5th Cir. 2003) (citing Harrison, 176 F.3d

at 787). This type of FCA claim is characterized as fraudulent inducement.

Under a fraudulent inducement theory, although the Defendants’ “subsequent
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5 We note that Laird outlines a two part test “to succeed on a fraud-in-the-inducement

theory under the FCA.” Laird, 491 F.3d at 259. Under the Laird test the Government must

prove that the Defendants (1) had no intention to perform according to the terms of the SBIR,

and (2) obtained payments under the SBIR contract that it was not legitimately entitled. See

id. (citations omitted). The second portion of this statement could be construed as requiring

“outcome materiality,” which is discussed in detail below. Laird, however, expressly declines

to rule on the proper standard for assessing materiality. Id. at 261 (citation omitted). 

13

claims for payment made under the contract were not literally false, [because]

they derived from the original fraudulent misrepresentation, they, too, became

actionable false claims.” United States ex rel. Laird v. Lockheed Martin Eng’g

& Science Servs. Co., 491 F.3d 254, 259 (5th Cir. 2007) (citing United States ex

rel. Marcus v. Hess, 317 U.S. 537, 543-44 (1943)).5

b. Requisite Scienter

The Government contends that the Defendants’ fraudulent conduct was

“made or carried out with the requisite scienter.” The scienter requirement

comes from § 3729(b)’s definition of the terms “knowing” and “knowingly.” We

have explained that “[t]hough the FCA is plain that ‘proof of specific intent to

defraud’ is not necessary, [the mens rea] requirement is not met by mere

negligence or even gross negligence.” United States ex rel. Farmer v. City of

Houston, 523 F.3d 333, 338 (5th Cir. 2008) (internal citation omitted). Thus, the

Government must demonstrate the Defendants had (1) actual knowledge of

falsity, (2) acted with deliberate ignorance of the truth or falsity of the

information provided, or (3) acted with reckless disregard of the truth or falsity

of the information provided when the Defendants fraudulently induced the

BMDO and Air Force to award them the SBIR grants. See id. at 339. 
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c. Materiality

The Government next argues that the false statements in the SBIR grant

proposals were material. “No majority decision of this circuit has addressed the

proper standard for assessing the materiality of a false statement under the

FCA’s civil-liability provisions.” Laird, 491 F.3d at 261. The parties and this

Court all recognize that “a false statement is material if it has a ‘natural

tendency to influence, or [is] capable of influencing, the decision of the

decisionmaking body to which it was addressed.’” Neder v. United States, 527

U.S. 1, 16 (1999) (quotation omitted) (insertion in original); see also United

States v. Southland Mgmt. Corp. (Southland II), 326 F.3d 669, 679 (5th Cir.

2003) (en banc) (Jones, J., concurring); United States v. Southland Mgmt. Corp.

(Southland I), 288 F.3d 665, 676 (5th Cir. 2002), vacated by grant of reh’g en

banc, 307 F.3d 352 (5th Cir. 2002) (quoting United States v. Wells, 519 U.S. 482,

489 (1997)). 

In Southland I, however, we noted two different interpretations of the

“natural tendency to influence or capable of influencing” standard. Southland

I, 288 F.3d at 676. Some courts have defined the standard to require “outcome

materiality” – “a falsehood or misrepresentations must affect the government’s

ultimate decision whether to remit funds to the claimant in order to be

‘material.’” Id. (citing United States ex rel. Berge v. Bd. of Trs. of the Univ. of

Ala., 104 F.3d 1453, 1459-60 (4th Cir. 1997); United States v. Intervest Corp., 67

F. Supp. 2d 637, 646-48 (S.D. Miss. 1999)). In contrast, another court required

what is termed “claim materiality” – “a falsehood or misrepresentation must be

material to the defendant’s claim of right in order to be considered ‘material’ for

the purposes of the FCA.” Id. (citing United States ex rel. Wilkins v. N. Am.

Constr. Corp., 173 F. Supp. 2d 601, 630 (S.D. Tex. 2001)). In Southland II, five

judges of this Court suggested that outcome materiality is the correct standard,
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6 Judge Jones’s concurrence first explained that the accepted definition of materiality

for civil FCA claims “equates materiality with ‘having a natural tendency to influence, or

[being] capable of influencing, the decision of the decisionmaking body to which it was

addressed.’” Southland II, 326 F.3d at 679 (quotation omitted) (insertion in original).

However, read it is entirety the concurrence implicitly adopts and applies the outcome

materiality standard. 

7 Adopting this test for materiality under the FCA aligns with our test for materiality

under 18 U.S.C. § 1001, the Federal Criminal False Statements Act. Our decisions state the

test for materiality under § 1001 as “‘tendency’ or ‘capacity to influence.’” See generally United

States v. McIntosh, 655 F.2d 80, 83 (5th Cir. 1981) (citing United States v. Krause, 507 F.2d

113, 118 (5th Cir. 1975); United States v. McGough, 510 F.2d 598, 602 (5th Cir. 1975)). 

15

explaining that a statement is material only if it actually affects the

government’s decision to pay. See Laird, 491 F.3d at 261 (citing Southland II,

326 F.3d 669 at 679 n.3).6

The Government, however, contends that these definitions are incorrect.

It argues that the FCA requires proof only that the defendant’s false statements

“could have” influenced the government’s payment decision or had the

“potential” to influence the government’s decision, not that the false statements

actually did so. We agree. The outcome and claim materiality definitions

unnecessarily narrow the “natural tendency to influence or capable of

influencing” test, which is unambiguous and easily applied.7

The lack of ambiguity in this test is clear when we examine the common

meaning of the words used. The Oxford English Dictionary (“OED”) defines

tendency as “a constant disposition to move or act in some direction or toward

some point, end, or purpose; leaning, inclination, bias, or bent toward some

object, effect, or result.” Oxford English Dictionary Online, www.oed.com (last

visited June 15, 2009) (defining “tendency”). The Merriam-Webster Dictionary

(“Merriam-Webster”) defines tendency as “a proneness to a particular kind of

thought or action.” Merriam-Webster Dictionary Online, www.merriamwebster.com (last visited June 15, 2009) (defining “tendency”). The OED has two
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16

definitions of “capable” that apply in this context: “able or fit to receive and be

affected by; open to, susceptible” and “able to be affected by; of a nature, or in a

condition, to allow or admit of; admitting; susceptible.” Oxford English

Dictionary Online, www.oed.com (last visited June 15, 2009) (defining

“capable”). Merriam-Webster defines capable as “susceptible <a remark capable

of being misunderstood>.” Merriam-Webster Dictionary Online, www.merriamwebster.com (last visited June 15, 2009) (defining “capable”). Finally, OED

defines influence as “ascendancy, sway, control, or authority, not formally or

overtly expressed” and as “[a] thing (or person) that exercises action or power of

a non-material or unexpressed kind.” Oxford English Dictionary Online,

www.oed.com (last visited June 15, 2009) (defining “influence”). MerriamWebster defines influence as “the act or power of producing an effect without

apparent exertion of force or direct exercise of command,” “corrupt interference

with authority for personal gain,” and “the power or capacity of causing an effect

in indirect or intangible ways.” Merriam-Webster Dictionary Online,

www.merriam-webster.com (last visited June 15, 2009) (defining “influence”).

Thus, the “natural tendency to influence or capable of influencing” test

requires only that the false or fraudulent statements either (1) make the

government prone to a particular impression, thereby producing some sort of

effect, or (2) have the ability to effect the government’s actions, even if this is a

result of indirect or intangible actions on the part of the Defendants. All that is

required under the test for materiality, therefore, is that the false or fraudulent

statements have the potential to influence the government’s decisions. 

Our conclusion is buttressed by cases from our sister circuits. The Ninth

Circuit recently recognized a circuit splitto measure materiality under the FCA.

United States v. Bourseau, 531 F.3d 1159, 1171 (9th Cir. 2008). The court noted

that the Fourth and Sixth Circuits have adopted a “‘natural tendency test’ for
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17

materiality, which focuses on the potential effect of the false statement when it

is made rather than on the false statement’s actual effect after it is discovered.”

Id. (quoting United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group,

Inc., 400 F.3d 428, 445 (6th Cir. 2005)); see also United States ex rel. Harrison

v. Westinghouse Savannah River Co., 352 F.3d 908, 913, 916-17 (4th Cir. 2003).

The court then explained that the Eighth Circuit has adopted the “more

restrictive ‘outcome materiality test.’” Bourseau, 531F.3d at 1171 (citing Costner

v. URS Consultants, 153 F.3d 667, 677 (8th Cir. 1998)). The Ninth Circuit

adopted the Fourth and Sixth Circuits natural tendency test “for materiality

because it is more consistent with the plain meaning of the FCA.” Id. (citation

omitted).

Moreover, Congress recently codified the definition of materiality when it

enacted the Fraud Enforcement and Recovery Act of 2009 (FERA), Pub. L. No.

111-21, § 4, 123 Stat. 1617 (2009) (to be codified at 31 U.S.C. § 3729). Congress

enacted § 4 of FERA to clarify the FCA and “to reflect the original intent of the

law.” Id. Congress’s enactment will add the following language to § 3729(b): “(4)

the term ‘material’ means having a natural tendency to influence, or be capable

of influencing, the payment or receipt of money or property.” If Congress

intended materiality to be defined under the more narrow outcome materiality

standard, it had ample opportunity to adopt the outcome materiality standard

in FERA. Instead, Congress embraced the test as stated by the Supreme Court

and several courts of appeals. While we decline to rule on whether this statute

applies retroactively or prospectively, we find this enactment to be relevant as

to Congress’s intent when it enacted the FCA. See NCNB Texas Nat’l Bank v.

Cowden, 895 F.2d 1488, 1500 (5th Cir. 1990) (“[A] legislative body may amend

statutory language to make what was intended all along even more
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18

unmistakably clear.”) (quoting United States v. Montgomery Count, Md., 761

F.2d 998, 1003 (4th Cir. 1985)). 

d. Payment of Money

Finally, the Government argues that the Defendants’ knowing, material,

false statements caused the government to pay out money. Neither party

disputes that the government awarded approximately $1.6 million to Lithium

Power as a result of the four SBIR grant proposals. Thus, we are left with

determining whether the Government has successfully demonstrated factors

one, two, and three of the above test. 

2. Analysis

The Government has met its burden with regards to factors one and

two–the Defendants knowingly provided false or fraudulent statements in the

SBIR grant proposals. Most egregiously, the Defendants lied in all four SBIR

grant proposals regarding a cooperative arrangement with the University of

Houston and Polyhedron Laboratories. The Defendants argued below that

because members of the public could use labs at the University of Houston and

Polyhedron Laboratories for a fee, Lithium Power, as a member of the public,

had an “arrangement” with both institutions. This argument is patently absurd.

The Defendants either purposefully, or with reckless disregard to the truth or

the falsity of their statements, misled the BMDO and the Air Force into

believing that Lithium Power had a formal partnership with these two

organizations. The ability of any member of the public to essentially “rent” the

facility is not synonymous with a cooperative arrangement of the type the

Defendants hoped the government would infer by their statements. These

misrepresentations alone would be sufficient to establish that the Defendants

had no intention to perform according to the terms ofthe SBIR, butthese are not

the only false statements contained in the SBIR grant proposals.
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The Defendants’ BMDO Phase I grant contained an incorrect incorporation

date for Lithium Power. This was not a mere typographical error, as Lithium

Power was not incorporated until five months after it submitted its Phase I

grant proposal to BMDO. In addition, the Defendants lied about the existence

of Lithium Power’s facilities, which were under construction at the time the

SBIR Phase I grant proposal was submitted. These false statements, especially

when considered in conjunction with the misrepresentation regarding a

cooperative arrangement with the University of Houston and Polyhedron

Laboratories, left the BMDO with the impression that Lithium Power was a

much more established and experienced company than it actually was. Thus,

the Defendants had no intention to perform according to the terms as outlined

in the BMDO SBIR grant proposals, because they did not portray Lithium Power

accurately in the proposals. Because the receipt of a Phase II grant was

predicated on the Phase I grant, any false or fraudulent statements made in the

BMDO Phase I grant equally taints the BMDO Phase II grant. 

We also find troubling Lithium Power’s failure to disclose receipt of the

BMDO grants when applying for an additional SBIR grant from the Air Force.

The SBIR application required applicants to describe “significant activities

directly related to the proposed effort” and “previous work not directly related

to the proposed effort but similar.” Lithium Power states that it told individual

members of the Air Force that it also received the BMDO grants, but that does

not negate the fact that it failed to account for the BMDO grants in its SBIR

grant proposals to the Air Force. This omission, again when coupled with the

misrepresentations regarding Lithium Power’s cooperative agreements,

establish thatthe Defendants had no intention to perform according to the terms

of the SBIR.
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8 Thus, even if we were to apply the “outcome” materiality standard, we would still

conclude that Lithium Power’s false statements were material.

20

The Government has also successfully demonstrated factor three–Lithium

Power’s false statements were material. As we explained above, the test for

determining whether a false statement is material is whether it has a “natural

tendency to influence or is capable of influencing” the government’s decisionmaking. We are convinced that Lithium Power’s false statements had the

potential to influence the BMDO and Air Force’s decisions to award Lithium

Power the SBIR grants. Lithium Power painted a picture of an established

company, that was so well-respected in the community that it had developed a

strong relationship with two notable research organizations. In reality, Lithium

Power was a company that was in its preliminary stages of development that

had yet to demonstrate any proven success. 

Moreover, in the instant case we also have evidence that the false

statements actually influenced the decision to award the Defendants the SBIR

grants.8 One of the BMDO Phase I evaluators recommended approving the

proposal because Lithium Power had adequate facilities to conduct the

project–in actuality Lithium Power had no such facilities. In addition, another

BMDO Phase I evaluator stated that his recommendation to fund Lithium

Power’s proposal was greatly influenced by the false statements. Finally, the

evaluator who approved the Air Force proposals stated that he would not have

approved funding the Air Force proposals if the Defendants had included

information regarding the BMDO SBIR grants in Lithium Power’s Air Force

SBIR grant proposal. 

Based on the foregoing analysis, we conclude thatthe Defendants violated

the FCA. The irony of this situation is not lost on the court. Lithium Power

blatantly deceived the BMDO and the Air Force and received funds that it was
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9 We review the damages award in this case de novo, because it was decided through

a motion for summary judgment.

21

not entitled to. But it appears that the company then went on to successfully

design and manufacture lithium-based batteries that the BMDO and the Air

Force found to be satisfactory. The Defendants ability to deliver on the hoped

for “ends,” however, does not justify the means it employed to receive the SBIR

grants. We affirm the judgment of liability.

C. Damages Award9

The district court held that the Government suffered damages in the

amount of the grants it paid out to the Defendants in connection with their

deceptive proposals–$1,657,455–and awarded treble damages in the amount of

$4,972,365. The Defendants argue that the Government is not entitled to

damages because it did not suffer an “injury.” The Defendants argue that the

district court erred in granting the damages award and state that no “court has

ever applied a fraudulent inducement/disgorgement theory in the absence of

some tangible injury to the government.” In response, the Government argues

that the Defendants’ false statements caused more than $1.6 million of DoD

SBIR funding to be siphoned off by a company with “dubious qualifications” and

that the funding should have gone to a better-qualified candidate. 

An individual who violates the FCA is liable to the United States for civil

penalties of “not less than $5,000 and not more than $10,000, plus 3 times the

amount of damages which the Government sustains because of the act of that

person.” See 31 U.S.C. § 3729(a). No circuit court has previously addressed the

proper method of calculating damages for a fraudulently induced research grant.

This Court has held, however, that damages are limited to the amount that was

paid out by reason of the false claim. United States v. Aerodex, Inc. 469 F.2d

1003, 1011 (5th Cir. 1972). Before the government may recover treble damages,
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10 At the time Miller was decided,the Government could recover only double, nottreble,

damages under the FCA.

11 The Career College Association filed as amicus curiae urging support of the district

court’s damages award. They also argue, however, that in calculating damages the court

should subtractthe value ofthe benefitthattheDefendants conferred on the Governmentfrom

the amount the Government paid to the Defendants and then treble this “actual-damages”

figure. The proposed method does not comport with the Supreme Court’s holding in Bornstein

or our holding in Thomas and we reject it.

22

it must“demonstrate the element of causation between the false statements and

the loss.” See United States v. Miller, 645 F.2d 473, 475-76 (5th Cir. 1981).10 In

United States v. Bornstein, the Supreme Court explained that when deducting

the “bargain” received from a defendant, a court must begin with the already

doubled (and now tripled) amount. 423 U.S. 303, 314 (1976) (superceded on

different grounds); see also United States v. Thomas, 709 F.2d 968, 972 (5th Cir.

1983).11

The contracts entered into between the government and the Defendants

did not produce a tangible benefit to the BMDO or the Air Force. These were

not, for example, standard procurement contracts where the government ordered

a specific product or good. The end product did not belong to the BMDO or the

Air Force. Instead, the purpose of the SBIR grant program was to enable small

businesses to reach Phase III where they could commercially market their

products. The Government’s benefit of the bargain was to award money to

eligible deserving small businesses. The BMDO and the Air Force’s intangible

benefit of providing an “eligible deserving” business with the grants was lost as

a result of the Defendants’ fraud. Finally, a direct causal relationship existed

between the funds received by the Defendants and their false statements.

In a case such as this, where there is no tangible benefitto the government

and the intangible benefit is impossible to calculate, it is appropriate to value

damages in the amount the government actually paid to the Defendants. The
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23

district court correctly determined that the proper amount of damages for the

four SBIR proposals was the entire amount the Defendants’

received–$1,657,455. The district court then correctly multiplied the amount of

damages by three, as required by statute, for a trebled damages award of

$4,972,365. We affirm the damages award. 

D. Claims for Release and Indemnification

The district court ruled that Longhi’s agreement to release and indemnify

the Defendants from suit related to any “matter prior to execution of” the

agreement to sell the stock was unenforceable because (1) federal public policy

bars the enforcement of releases in qui tam cases, and (2) the FCA prohibits a

qui tam plaintiff from dismissing a FCA claim. The Defendants argue that the

district court erred and rely on Ninth Circuit case law to support their assertion

that if a relator has already filed his claim at the time of signing the release, the

courts have enforced the releases. See United States ex rel. Hall v. Teledyne Wah

Chang Albany, 104 F.3d 230, 233 (9th Cir. 1997). In addition, the Defendants

argue that the FCA does not bar the release and indemnification agreement

because Longhi’s release did not prohibit the Government from pursuing any of

the claims in this lawsuit. With respect to the indemnification clause contained

on the stock sale agreement, the Defendants argue that the cases cited by the

district court address common law claims for indemnification not contractual

indemnification, which is governed by the Supreme Court’s decision in Town of

Newton v. Rumery, 480 U.S. 386 (1987). Longhi argues that the district court

correctly concluded that the release and indemnification were unenforceable as

they apply to Longhi’s FCA allegations because, inter alia, the text of the FCA

invalidates the release. 

The Defendants’ arguments are unavailing because the release and

indemnification clauses are invalid under the plain language of the FCA. When
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24

an individual brings a qui tam suit under the FCA, the action may be dismissed

only if the court and the Attorney General give written consent to the dismissal

and their reasons for consenting. See 31 U.S.C. § 3730(b)(1). Once filed by the

relator, the complaint must remain under seal for at least sixty days, and is not

served on the defendant until the court so orders. § 3730(b)(2). The Government

may choose to intervene and proceed with the action within the sixty days after

it receives the complaint, material evidence, and information, but the

Government may extend the sixty-day evaluation period with a showing of good

cause to the court. § 3730(b)(3). The district court correctly found that Longhi

signed the release eleven days after he filed the qui tam complaint and was

therefore unable to personally dismiss the case. In addition, the district court

correctly held that even if the release and indemnification were valid, Longhi

could not have entered into it at the time he did without the express knowledge

and consent ofthe United States, because the statutory sixty-day review window

still governed. This outcome comports with our decision in Searcy v. Phillips

Electronics North American Corp., where we held that the United States has

absolute power to veto any settlement between a relator and defendant

corporation. 117 F.3d 154, 160 (5th Cir. 1997). 

Furthermore, the interest in enforcing the release and indemnification

clauses are outweighed by public policy concerns. The Supreme Court’s decision

in Rumery establishes the framework for determining whether public policy

prevents enforcement of the release and indemnification in the limited context

of this qui tam case. Specifically, the Supreme Court held that “a promise is

unenforceable if the interest in its enforcement is outweighed in the

circumstances by a public policy harmed by the enforcement of the agreement.”

Rumery, 480 U.S. at 392 (citation omitted). The public policy interest implicated

in this case is the ability of the Government to obtain information from relators
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25

it could not otherwise obtain. It is in the Government’s best interest to gain full

information from the relator. To enforce the release and indemnification clauses

contained in the stock sale agreement against Longhi would ignore the public

policy objectives expressly spelled out by Congress in theFCA and would provide

disincentives to future relators. In addition, enforcing the release and

indemnification clauses would encourage individuals guilty of defrauding the

United States to insulate themselves from the reach of the FCA by simply

forcing potential relators to sign general agreements invoking release and

indemnification from future suit. The district court correctly determined that

enforcing the release against Longhi is against public policy. We affirm.

E. Defendants’ Motion for Summary Judgment

The Defendants argue that the district court should have granted their

motion for summary judgment. Because we have affirmed the district court’s

decision to grant the Government’s motion for summary judgment, we find no

error.

III. ATTORNEYS’ FEES

The Defendants argue that we should reverse the award of attorneys’ fees

because Longhi failed to segregate the non-compensable work performed by his

counsel. In response, Longhi argues that under the FCA he is entitled to an

award of attorneys’fees for alltime reasonably expended on his behalf in pursuit

of the achieved result. Longhi asserts that it is legally irrelevant that he

expended a small, limited amount of time in connection with claims that were

not actively litigated in the case. 

A. Standard of Review

The parties dispute the applicable standard of review. Only two of our

cases, both unpublished, discuss the applicable standard for reviewing a district

court’s award of attorneys’ fees under the FCA. United States v. Medica Rents
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12 We note that Bain and Medica Rents involve § 3730(d)(4) of the FCA and the instant

case involves § 3730(d)(1) of the FCA. We find this to be a distinction without relevant

difference in determining the appropriate standard of review.

26

Co. Ltd., No. 03-11297, 2008 U.S. App. LEXIS 17946, at *1 (5th Cir. 2008); U.S.

ex rel. Bain v. Georgia Gulf Corp., 208 F. App’x 280, 282 (5th Cir. 2006). In both

instances, we applied an abuse of discretion standard when reviewing a district

court’s award of attorneys’ fees.12 Thus, we apply an abuse of discretion

standard of review to the instant case. In Bain, we explained that the abuse of

discretion standard of review is consistent with our review of attorneys’ fees

under similar circumstances. 208 F. App’x at 282 (citing Skidmore Energy, Inc.

v. KPMG, 455 F.3d 564, 566 (5th Cir. 2006)). “Under the abuse of discretion

standard, a district court’s decision to award attorneys’fees will not be disturbed

unless the award is based on (1) an erroneous view of the law or (2) a clearly

erroneous assessment of the evidence.” Id. See also Travelers Ins. Co. v. St. Jude

Hosp. of Kenner, Inc., 38 F.3d 1414, 1417 (5th Cir. 1994); Alizadeh v. Safeway

Stores, Inc., 910 F.2d 234, 237-38 (5th Cir. 1990); Cobb v. Miller, 818 F.2d 1227,

1231 (5th Cir. 1987) (stating that the ultimate award of attorney’s fees is

reviewed for abuse of discretion); EEOC v. First Ala. Bank, 595 F.2d 1050, 1056

(5th Cir. 1979). 

B. Analysis

Section 3730(d)(1) of the FCA states that a relator in a successful qui tam

action is entitled to “receive an amount for reasonable expenses which the court

finds to have been necessarily incurred, plus reasonable attorneys’ fees and

costs. All such expenses, fees, and costs shall be awarded against the

defendant.” 31 U.S.C. §3730(d)(1). The question is whether Longhi’s attorneys’

fee award should be segregated because he was not “successful” in proving a

violation of the FCA with regards to all twenty-one contracts, as he initially
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27

alleged. We find the Supreme Court’s decision in Hensley v. Eckerhart, to be

instructive. 461 U.S. 424 (1983).

In Hensley, the Supreme Court reviewed an award of attorneys’ fees

pursuantto the Civil Rights Attorney’s Fees Awards Actfor fees incurred during

civil rights litigation where the plaintiffs did not prevail on all of their claims.

Id. at 426. The Court stated that “plaintiffs may be considered prevailing

parties for attorney’s fees purposes if they succeed on any significant issue in

litigation which achieves some ofthe benefitthe parties soughtin bringing suit.”

Id. at 433 (quotation and internal quotation marks omitted). The Supreme

Court explained that a plaintiff might bring distinctly different claims that are

based on different facts and legal theories, and in such an instance “work on an

unsuccessful claim cannot be deemed to have been ‘expended in pursuit of the

ultimate result achieved.’” Id. at 435 (quotation omitted). The Court also

explained, however, that there are sometimes instances where a “plaintiff’s

claims for relief will involve a common core of facts or will be based on related

legal theories.” Id. at 435. In those instances, where much of counsel’s time is

“devoted generally to the litigation as a whole, making it difficult to divide the

hours expended on a claim-by-claim basis . . . the district court should focus on

the significance of the overall relief obtained by the plaintiff in relation to the

hours reasonably expended on the litigation.” Id. 

The district court properly noted the standards set out by Hensley and

expressly determined that the claims regarding the performance on the contracts

and the claims alleging fraudulent inducement were not factually distinct. The

district court determined that the claims regarding the four SBIR contracts

arose from the same set of contracts, same actors, and the same illegal intent to

defraud the government of money in violation of the FCA. The district court also
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determined that the fees related to the four SBIR contracts should not be

segregated from the other claims. 

We hold that the district court did not abuse its discretion in finding that

the level of success on the four SBIR contract claims alone was sufficient enough

to merit entitlement to a full attorneys’ fees award. The district court reviewed

the billing records and found no duplicative efforts or unnecessary hours, and

thus found that Longhi’s counsel’s billing record to be reasonable. We affirm.

IV. CONCLUSION

For the foregoing reasons, we AFFIRM the district court’s judgment on all

claims.