CIVIL FALSE CLAIMS ACT: D.C. Circuit Reinforces SAIC Decision In False Certification Case, Rejecting FCA Damages Claim In Case Based On Lack Of Supporting Documentation

In late 2010, the United States Court of Appeals for the D.C. Circuit issued a seminal decision rejecting the government's damages theory in a civil False Claims Act "false certification" case. In United States v. Science Applications International Corp. ("SAIC"), while affirming false certification (there was an alleged violation of conflict of interest rules) as a basis for falsity under the FCA, the appellate court nonetheless ruled that the district court erred in instructing the jury, in assessing damages, not to place any value on the actual services SAIC provided under the contract. See SAIC, 626 F.3d 1257 (D.C. Cir. 2010). See also FraudMail Alert No. 10-12-06. In SAIC, the Justice Department argued, and the jury agreed, that the FCA damages were three times the full amount paid under the contract ($1,973,839.61), even though the actual breach of contract damages were only $78. This groundbreaking decision essentially held that the Supreme Court's decision in United States v. Bornstein, 423 U.S. 303 (1976) governs all FCA damages calculations, even in cases based on false certifications.

Last week, the D.C. Circuit reinforced and expanded that damages holding. In United States ex rel. Davis v. District of Columbia, No. 11-7039, 2012 WL 1673655 (D.C. Cir. May 15, 2012), the court rejected a qui tam relator's claim that the government would not have paid anything for Medicaid services that were provided to special education students by the D.C. Public Schools. Relator's theory was that the Schools' claims to Medicaid were false because they failed to comply with a requirement to maintain documents supporting claimed services. In affirming the dismissal of relator's damages claim, the court noted that there was no allegation that the services paid for were not actually provided, found that the documentation requirement had no monetary value, and held that the government suffered no harm as a result of the failure to comply with the documentation requirement. The Davis and SAIC decisions, as well as other recent decisions rejecting claims for astronomical penalties where no damages have been proven, show that courts are aware of the high stakes in FCA allegations, and are focusing on the actual impact of the underlying false claims, rather than imposing grossly disproportionate damages that ignore the actual benefits obtained by the government from the conduct at issue.

Factual and Procedural Background in Davis

The relator's firm in...