Academic journal article Iowa Law Review

True Damages for False Claims: Why Gross Trebling Should Be Adopted

Academic journal article Iowa Law Review

True Damages for False Claims: Why Gross Trebling Should Be Adopted

Article excerpt

I. Introduction

Fraud has been a plague on the government since our nation's founding. Commentators have suggested that as much as ten percent of the government's spending is procured fraudulently.1 Since its enactment, the False Claims Act ("FCA") has served as a useful tool for government prosecutors and private plaintiffs to combat fraud. The FCA provides for hefty monetary penalties for parties who fraudulently obtain government funds.2 The FCA is particularly effective at combating fraud because it allows private citizens, sometimes called relators, to sue on behalf of the government.3 For their efforts, relators are given a portion of the damage award.4

Recently, the proper method courts use to calculate damages under the FCA has become unclear.5 The statute provides for the trebling (tripling) of damages but does not specify what constitutes damages under the Act.6 Two major theories have developed as a result of the ambiguity. Under gross trebling, any benefits of a defrauding party's performance on a government contract are subtracted from the government's loss after damages are trebled.7 Under net trebling, benefits are subtracted before multiplying the government's loss.8 This difference poses a problem, as it creates uncertainty in the outcome of FCA for relators, the government, and defendants. This Note proposes that gross trebling should be adopted in order to best protect the public and further the intent of the Act.

Part II of this Note introduces the FCA, emphasizes the importance of qui tam relators, explains the different ways damages are calculated under the Act, and analyzes the most important court decisions touching on damages under the Act. Part III addresses the problems that come from the current ambiguity, including its impact on relators, the government, and defendants. Part IV proposes that Congress intervene as it has in the past when problems with the FCA undermined its efficacy and adopt gross trebling. It also argues that if Congress does not act, the Supreme Court could resolve the issue. Part V concludes.

II. Background: The False Claims Act Foundations and Key Court Cases

This Part contains important background information necessary to fully understand the FCA and the problems that emerge from the current ambiguity regarding damage calculations. Section A addresses the historical foundations of the FCA, as well as an overview explaining how the Act works. It continues by highlighting the provisions of the FCA that address private (qui tam) suits on behalf of the government. It concludes with an in-depth explanation of gross and net trebling. Section B explores the most significant court cases addressing the question of damages under the FCA.

A. The False Claims Act9

1.History and Overview of the FCA

The FCA, originally enacted in 1863, was passed to combat the actions of fraudulent contractors during the Civil War.10 Upon discovering that contractors were selling "the Union Army decrepit horses and mules in ill health, faulty rifles and ammunition, and rancid rations," President Lincoln urged Congress to pass the FCA.11 The original Act made it illegal "to present false statements in writing (claims) to the United states government to obtain money or reimbursements to which the claimant was not entitled."12 The modern text of the FCA makes a person liable for damages to the government as a result of knowingly making "a false or fraudulent claim."13 The statute later defines claim in a way that limits the application of the Act to claims submitted to the United States Government or to a recipient acting on the government's behalf.14 The statute provides that violators are "liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000 . . . plus 3 times the amount of damages which the Government sustains because of the act of that person."15 The Act also provides for penalties to be adjusted for inflation. …

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