Last week, the Sixth Circuit decided United States ex rel. Wall v. Circle C Construction. The case required the Sixth Circuit to revisit the appropriate method of calculating damages for a violation of the False Claims Act.
Circle C Construction built 42 warehouses for the U.S. Army at an Army base on the border of Kentucky and Tennessee. Part of the agreement between the parties was that Circle C, and any subcontractors that they employed, would pay their employees above-market wages per the Davis-Bacon Act. One contract required that electricians be paid an hour rate of $19; however, Phase Tec, a subcontractor involved in the electrical work, only paid their employees $16 per hour. All totaled, Phase Tec paid a handful of electricians about $9,900 less than was required by the Davis-Bacon wages specified in the contract. The government brought suit under the False Claims Act and claimed actual damages of nearly $260,000 – the entire value of the contract. When trebled, as the Fair Claims Act permits, the government’s total damages were stated to be $777,894. The district court granted all of the government’s damage request minus $15,000 which Phase Tec had already paid in settlement. The Sixth Circuit reviewed the award of damages for an abuse of discretion.
The government’s damage award rested on the claim that all of the electricians’ work was “tainted” by the underpayment; therefore, the warehouses were rendered valueless to the government. The court took exception to the government’s “creative” accounting by noting that the theory of “tainted” goods or services has only been applied in situations where “the goods were worthless because they were dangerous to use,” or where “no award of money damages could remedy the contractor’s breach.” But, the warehouses were being used daily by the Army and the breach could be remedied by “simply writing a check.” Therefore, the Sixth Circuit found that the government’s claim of “taint” under the False Claims Act did not apply. As such, the court held that damages could be simply calculated as treble the $9,916 dollar difference between the contracted wage and the paid wage, or $29,748.
Judge Rogers wrote a concurrence to note that the, while it was not necessary in the current case because the actual damages were so easily calculated, there are some situations where the government’s damages could be “the amount that the government would have refused to pay if it had known [about the breach] in time.” Judge Rogers noted that, simply because the government continues to take advantage of the goods or services, there is no reason that the measure of damages could not be the amount that was wrongly paid by the government.