Seventh Circuit Court Of Appeals Rejects Justice Department’s 'Gross Trebling' Approach In Calculating Damages In False Claims Act Cases

Keywords: False Claims Act Cases, damages, gross trebling, net trebling, FCA

The Seventh Circuit Court of Appeals' decision in United States v. Anchor Mortgage Corp., 2013 WL 1150213 (7th Cir. Mar. 21, 2013), provides additional guidance on the appropriate measure of damages under the False Claims Act (FCA). In a setback for the US Department of Justice (DOJ), the Seventh Circuit rejected the government's "gross trebling" method for calculating damages, instead adopting the "net trebling" approach advocated by the defendants. Anchor Mortgage follows decisions from other circuits that have rejected the government's expansive "gross trebling" damages theory in FCA cases.1

In Anchor, the district court found that the defendants, a mortgage company and its former president, "lied when applying for federal guarantees of 11 loans" in violation of the FCA. Specifically, the district court found that defendants had made two categories of false statements: first, defendants provided bogus certificates that down payments had been made in connection with the loans; and second, defendants falsely represented that they had not paid referral fees in connection with the loans. The district court imposed a penalty of $5,500 per loan, plus treble damages of approximately $2.7 million.

The Seventh Circuit considered two issues regarding damages. First, the Seventh Circuit addressed what disclosures were necessary to obtain the benefit of 31 U.S.C. § 3729(a)(2), which limits damages to double damages instead of treble damages when the defendant has voluntarily disclosed the violation within 30 days. The defendants argued that, because they had provided all information known to them for some potential false claims, they should be entitled to a limitation of damages on all false claims at issue. The Seventh Circuit rejected this argument and held that "[c]oming clean 29 days after submitting one false claim does not mitigate the penalty for other false claims that had been submitted months earlier."

Second, and more importantly, the Seventh Circuit addressed how treble damages should be calculated under the FCA. The Seventh Circuit illustrated the differing approaches advocated by the DOJ and defendants—known as "gross trebling" and "net trebling," respectively—by using one of the loans in question as an example:

[T]he Treasury paid $131,643.05 on its guaranty of a particular loan. Three times that is $394,929.15. The real estate mortgaged as security for that...