The False Claims Act does not explain how courts should calculate the amount of damages when a defendant is found liable for violating the act. Under 31 U.S.C. § 3729(a), defendant who violate the FCA are subject to civil penalties ranging from $10,781 to $21,563 per claim, as well as three times the amount of damages sustained by the United States Government (commonly referred to as “treble damages”). The purpose of the FCA’s treble damages provisions is make sure the federal government is made whole by a defendant’s fraudulent conduct.

There are many different ways companies and individuals commit fraud against the government. The different kinds of fraud create different methods to calculate damages for the harm done to the government. The “benefit of the bargain” concept is one approach courts use to calculate damages. This approach is often used to measure damages in cases involving procurement contracts where the government receives a tangible product. Using this approach, courts measure damages as the difference between what the government paid for the items or services and what the government should have paid. See U.S. ex rel. Longhi v. Lithium Power Tech., 530 F.Supp.2d 888 (S.D.Tenn. 2008).

Another approach to calculating damages under the FCA is based on the specific facts of the case and the ultimate value of the end-product received by the government. In Longhi, the United States District Court for the Southern District of Texas found that the defendants violated the False Claims Act in submitting four contract proposals under the Department of Defense’s Small Business Innovation Research Program (“SBIR”). The court in Longhi found that the Defendants had engaged in a reckless disregard of the truth when submitting their proposals under the SBIR.

Evidence in Longhi showed that had the defendants submitted truthful proposals, the persons reviewing the proposals would not have recommended the proposals for funding. Using the “benefit of the bargain approach,” the benefit to the government under the SBIR program was to award money under SBIR to eligible and deserving small businesses. The court found that by misrepresenting its eligibility for the program, the defendants denied the government the benefit of the SBIR program. Id. at 897. As the court explained, “the legislative history of the SBIR demonstrates that the value of the program lies not in innovation, but in innovation by eligible small businesses.” Any final product provided by the defendants, who were not eligible under the SBIR, was valueless to the government. Under the benefit of the bargain analysis, the proper amount of damages for the government’s claim in Longhi is the amount the government paid under the improper contracts ($1.65 million), multiplied by three ($4.97 million), plus civil penalties.

When assessing penalties, the court must decide whether multiple penalties are appropriate. The focus here is on the conduct of the defendant. In a standard overbilling case, the court calculates the penalty based on the number of invoices submitted to the government. In cases where liability is based on the fraudulent inducement of contracts, the court may assess penalties based on each contract. The focus, then, is on the acts by the defendant causing the fraud.

No matter which damages model the court uses, the damages must provide a deterrent to the defendant and others so as to discourage fraud against the government. It is not enough for the damage calculation to repay the illegal profit. Instead, the damages must also make the defendant account for the fraud. The FCA’s treble damages provision is not the same as punitive damages. The treble damages amount reflects Congress’ intent that the wrongdoer repay the government for the expense of tracking down and prosecuting the fraud. Cook County, Illinois v. U.S. ex rel. Chandler, 538 U.S. 119 (2003).

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Jason Cornell is an attorney who represents whistleblowers with the law firm Clark Fountain LaVista Prather Keen & Littky-Rubin. Clark Fountain represents plaintiffs in various matters throughout the United States. If you have questions regarding the issues addressed in this or other posts, you can reach Jason at jcornell@clarkfountain.com.