On April 6, 2015, the Sixth Circuit reversed a $657 million judgment previously labeled by the Justice Department as “the largest judgment in the history of the False Claims Act,” because the government failed to prove damages. For the second time in U.S. v. United Technologies Corp., the Sixth Circuit remanded to the district court to determine if the government can prove that false statements made in a 1983 supply bid by Pratt & Whitney, now owned by United Technologies Corp., in resulted in actual damages to the government. Significantly, the Sixth Circuit opined that comparable sales analysis is the preferred method of determining the fair market value of goods to determine if the government suffered damage, even in a market that appears to be an oligopoly.
The government filed the case in 1999, claiming that Pratt had made false statements to the Air Force while competing with GE Aircraft to supply engines for fighter jets. Pratt had served for years as the exclusive supplier of engines for the fighter jets, when, in 1982, the Air Force decided to switch to competitive bidding. This switch led to “the Great Engine War” as Pratt and GE Aircraft tried to undercut the other to sell more engines to the Air Force. The government alleged that in its 1983 multi-year supply bid, Pratt misstated its projected costs to supply the engines to coax the Air Force to choose Pratt over GE Aircraft. However, this didn’t work: the Air Force purchased most of its aircraft in 1983 from GE, and in each subsequent year, the Air Force called for the companies to improve their prior “best and final” offers. The resulting lower offers allowed the Air Force to purchase more engines from the supplier who could generate that year’s best offer.
Pratt was held liable for violating the False Claims Act for the statements regarding projected costs in its 1983 bid, but the lower court initially found no actual damages, resulting in an award of $7 million in statutory penalties only. In the first appeal in 2010, the Sixth Circuit vacated the district court’s damages holding. On remand, the district court awarded $657 million in damages. In its April 6, 2015 opinion, the Sixth Circuit again reversed, holding that its earlier remand had not mandated that the lower court find the government suffered actual damages, but simply required a second look at calculation issues.
The Sixth Circuit noted that the government bears the burden of proving its actual damages. The Sixth Circuit rejected the government’s argument that in evaluating what the government should have paid for the engines, a presumption should apply that a dollar of overstated projected costs in the supply bid translates to a dollar of actual damages. Rather, to determine whether the government paid more than it should have, the Sixth Circuit stressed that the analysis should focus on the fair market value of the supplied engines:
When the government gets what it paid for despite a contractor’s misstatements, it [...]