Opinion ID: 779020
Heading Depth: 3
Heading Rank: 3

Heading: FCA Damages

Text: 33 The crux of this case is the appropriate measure of damages under the FCA, which simply provides for 3 times the amount of damages which the Government sustains because of the act of th[e] person who submitted the false or fraudulent claim. 31 U.S.C. § 3729(a). We have previously observed that FCA damages typically are liberally calculated to ensure that they `afford the government complete indemnity for the injuries done it.' United States ex rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296, 304 (6th Cir. 1998) (quoting United States ex rel. Marcus v. Hess, 317 U.S. 537, 549, 63 S.Ct. 379, 87 L.Ed. 443 (1943)). [T]he government is entitled to full damages where it proves it received no value at all. Id. 34 In Marcus, the Supreme Court indicated that restitution to the government of money taken from it by fraud was the motivating purpose of the FCA; therefore, the device of [then-] double damages plus a specific sum was chosen to make sure that the government would be made completely whole. Marcus, 317 U.S. at 551-52, 63 S.Ct. 379. Three decades later, in United States v. Bornstein, 423 U.S. 303, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976), the Supreme Court understood the baseline to be the Government's actual damages, measured as equal to the difference between the market value of the [goods] it received and retained and the market value that the [goods] would have had if they had been of the specified quality. Id. at 316 & n. 13., 96 S.Ct. 523 The Bornstein Court favored this formula because it maximizes the deterrent impact of the [then-] double-damages provision and fixes the relative rights and liabilities of the respective parties with maximum precision. Id. at 317, 96 S.Ct. 523. 35 In this case, the district court held that the Government could recover damages under the FCA that were the direct, proximate, and foreseeable result of the claims submitted by Boeing for Aircraft 89-0165; Boeing had argued that its liability at most was limited to the price of a fully-conforming transmission gear. Roby II, 79 F.Supp.2d at 895. On appeal, Boeing continues to maintain that the proper measure of direct FCA damages is the amount wrongfully paid on the claim, Reply Br. at 23, or the value of the defective Speco gear. However, Boeing now concedes that damages under the FCA could equal — but never exceed — the amount of the claim, which in this case would be the approximately $4.1 million value of Boeing's contract to remanufacture Aircraft 89-0165. 36 Negotiation strategy aside, we are at a complete loss as to how Boeing can understand the amount wrongfully paid to be limited to the portion of the contract price allocated to the defective gear. Reply Br. at 21. According to our reading of the contract and the subsequent invoice, Boeing billed the Government for the remanufactured helicopters as units, not as assemblages of assorted parts. Cf. Bornstein, 423 U.S. at 307, 96 S.Ct. 523 (invoices for radio kits that contained falsely marked electron tubes included claims for payment for the falsely marked tubes). The fact that every component but one conformed to contract requirements is not legally significant when the defective gear was flight critical and thus necessary for flight. Because the Speco gear was defective, Aircraft 89-0165 was defective, making Boeing's entire claim for payment false for the purposes of the FCA. 37 This understanding of Boeing's FCA violation informs our analysis of how to calculate damages under the FCA. Under the diminished value or benefit of the bargain test, which Boeing cites as controlling, we subtract the market value of what the Government received from what it was promised. 7 That the contract in this case was for the remanufacture rather than the sale of a helicopter gives us some pause, but ultimately does not affect the issue before us. 8 We will therefore frame the following discussion in terms of the market value of remanufactured helicopters. 38 Under Compton, the market value of Aircraft 89-0165 as delivered was zero. Boeing, of course, would disagree, and we are aware of the fact that the Army did get fifty-six hours of flight time from the helicopter, when the warranty was good for two-hundred flight hours. However, as we concluded in Compton: 39 [A] setoff based on value purportedly received would create a perverse incentive system in which government contractors could endanger the lives of American soldiers by providing substandard materiel, and the Army would be deterred from correcting the danger because it would be forced to bear the cost of any use it received from the substandard goods before their defects were discovered. 40 Compton, 142 F.3d at 305 n. 8. We believe that this policy argument, which was compelling with respect to untested jeep brake-shoe kits, id. at 297-98, has even more force in the context of this case. 41 Compton is not as helpful in determining the market value of Aircraft 89-0165 as promised. In Compton, we held that the Government could recover the contract price because damages were the same whether we applied the diminished-value test, as the defendant urged, or the Uniform Commercial Code's rejection provision. Id. at 305. However, contrary to Boeing's reading of the case, Compton does not necessarily signify that the recovery of damages in FCA cases is limited to the contract price originally paid. Reply Br. at 26. Although the Government apparently did not claim that its full or actual damages were more than the contract price in Compton, it does so in this case. 42 Boeing characterizes the Government's claim as one for replacement costs, which it argues are consequential damages and thus unrecoverable under the FCA. We think that this characterization confuses the issue. Under the diminished-value test that Boeing itself favors, actual damages depend on market value. Bornstein, 423 U.S. at 317 n. 13, 96 S.Ct. 523. Boeing conflates market value and contract price, but the concepts are clearly distinct. Cf. U.C.C. § 2-713 (2001) ([T]he measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price ...). In this case, the Government contracted for Aircraft 89-0165 to be remanufactured to specific standards. The helicopter as received by the Government did not meet those specifications. Therefore, the Government's damages equal the difference between the market value of Aircraft 89-0165 as received (zero) and as promised. We do not presume to estimate the market value of a remanufactured helicopter. For our present purposes, we answer the question certified for interlocutory appeal in the affirmative — that is, the Government may recover damages under the FCA for the loss of a helicopter that results from the failure of a defective flight-critical component part. We note that these damages do not represent replacement costs. 9 Because the Government did not contract for a new helicopter, it may not recover the roughly $13 million value of the helicopter bought to replace the destroyed Aircraft 89-0165. However, it may recover the benefit of its bargain with Boeing, which would be the value that Aircraft 89-0165 would have had if it had been of the specified quality.