Sixth Circuit Rejects Government’s $664M FCA Judgment, Remands For Second Time

Posted by Scott Stein and Jessica Rothenberg

In the latest decision in litigation that spans 17 years and relates to conduct that occurred 32 years ago, the Sixth Circuit reversed a $664 million judgment in favor of the government against United Technologies Corp. and remanded the case, for a second time, for a recalculation of damages. A copy of the Sixth Circuit’s opinion in United States v. United Techs. Corp., No. 13-4057 (6th Cir. Apr. 6, 2015) can be accessed here.

In 1999, the United States filed a lawsuit against Pratt & Whitney (“P&W”), now owned by United Technologies, alleging that Pratt violated the False Claims Act by falsely certifying that it had corrected previously misstated projected costs in a 1983 bid to supply engines for the Air Force’s F-15 and F-16 fighter jets. The Air Force ultimately chose to divide its engine orders between P&W and another manufacturer, and each year, issued a “call for improvement” that requested more favorable terms than the prior year’s “best and final offer” from P&W and the other manufacturer. The Air Force certified each year that P&W’s prices were “fair and reasonable” based on the “market test between competitors.”

In 1998, the government filed an administrative action against P&W with the Armed Services Board of Contract Appeals alleging that P&W misrepresented that it had corrected problems in its initial bid and used its most accurate cost data to develop its best and final offer prices. However, the Board rejected the government’s claim, holding that P&W alleged misstatements did not cause any damages because the Air Force had relied on competitive forces, rather than the erroneous price and cost data, in awarding its contracts. Therefore, Board concluded, the prices that the Air Force paid for the engines were not inflated by the alleged fraud. The Federal Circuit affirmed the Board’s determination.

In 1999, the government filed a separate lawsuit in federal district court alleging violations of the FCA and for common law restitution. In 2008, the district court held P&W liable under the FCA, but found that the government had suffered no actual damages and awarded the government only $7 million in statutory penalties. The district court also determined that the government’s claims for restitution were barred by claim preclusion because they should have been litigated before the Board. See United States v. United Techs. Corp., No. 3:99-cv-093, 2008 WL 3007997 (S.D. Ohio Aug. 1, 2008). The government appealed, and in 2010, the Sixth Circuit affirmed liability, but found that the government’s restitution claims were not barred by claim preclusion and remanded the case back to the district court. See United States v. United Techs. Corp., 626 F.3d 313 (6th Cir. 2010). On remand, the district court held that the Board and Federal Circuit litigation did not resolve whether P&W misstatements caused the government damages and therefore rejected P&W’s issue preclusion defense. In addition to the $7 million originally awarded, the government was awarded $657 million in treble damages, restitution, and prejudgment interest. See United States v. United Techs. Corp., 950 F. Supp. 2d 949 (S.D. Ohio 2013).

On appeal from the 2013 judgment, the Sixth Circuit affirmed the district court’s holding that issue preclusion did not bar the government’s damages claim under the FCA and common law restitution. However, the Sixth Circuit held that the district court had, mistakenly, exclusively relied on the government’s damages estimate, which failed to take into account the role that competition between P&W and the other manufacturer played in determining reasonable and fair prices, and whether that competition mitigated the damages to the government. Citing the protracted litigation and the decades that had passed since the fraud, the court was “tempted” to end the case with the government receiving the $7 million in statutory penalties under the FCA. Further, the court stated that “the government had every opportunity to put on an expert to show whether affected its damages,” but it had “refused to do so.” However, the Sixth Circuit ultimately decided that the district court, which presided over the remand litigation, was in a better position to decided whether the government should have another chance to prove its damages after taking into account the role of competition. The Sixth Circuit reversed the lower court’s judgment and remanded the case for further proceedings.