Seventh Circuit Holds That Treble Damages Under The False Claims Act Are Based On Net Loss (Not Gross Loss As Argued By Gov't)
The Seventh Circuit agreed with defendants and held that treble damages under the False Claims Act should be calculated based on net loss:
The False Claims Act does not specify either a gross or a net trebling approach. Neither does it signal a departure from the norm—and the norm is net trebling. The Clayton Act, which created the first treble-damages action in federal law, 15 U.S.C. § 15, has long been understood to use net trebling. The court finds the monopoly overcharge—the difference between the product's actual price and the price that would have prevailed in competition—and trebles that difference. See, e.g., Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). A gross trebling approach, parallel to the one the district court used in this suit, would be to treble the monopolist's price, then subtract the price that would have prevailed in competition. If there is a reason why the courts should use net trebling in antitrust suits and gross trebling in False Claims Act cases, it can't be found in § 3729—nor does the United States articulate one.
Basing damages on net loss is the norm in civil litigation. If goods delivered under a contract are not as promised, damages are the difference between the contract price and the value of what arrives. If the buyer has no use for them, they must be sold in the market in order to establish that value. If instead the seller fails to deliver, the buyer must cover in the market; damages are the difference between the contract price and the price of cover. If a football team fires its coach before the contract's term ends, damages are the difference between the promised salary and what the coach makes in some other job (or what the coach could have made, had he sought suitable work). Mitigation of damages is almost universal.
The Seventh Circuit also noted that other appellate decisions generally use a net trebling approach in FCA cases. See, e.g., United States ex rel. Feldman v. Gorp, 697 F.3d 78, 87–88 (2d Cir.2012); United States v. United Technologies Corp., 626 F.3d 313, 321–22 (6th Cir.2010); United States v. Science Applications International Corp., 626 F.3d 1257, 1279 (D.C.Cir.2010); Commercial Contractors, Inc. v. United States, 154 F.3d 1357, 1372 (Fed.Cir.1998).