Last Thursday, the Seventh Circuit addressed the issue of whether a net trebling or gross trebling approach should be used in calculating damages in False Claims Act cases. (See United States v. Anchor Mortgage Corp. et al, Nos. 10-3122, 10-3342 & 10-3423 (7th Cir. March 21, 2013).

After a bench trial, a district judge found that Anchor Mortgage Corporation and its Chief Executive Officer submitted false claims when applying for federal guarantees of 11 loans. The district court imposed a penalty of $5,500 per loan, plus treble damages of about $2.7 million pursuant to 31 U.S.C. § 3729(a)(1). The FCA’s trebling provision provides that a successful plaintiff shall recover “a civil penalty…plus 3 times the amount of damages which the Government sustains because of the act of that person.” Id. The district court calculated treble damages based on the government’s gross loss, rather than its net loss. Defendant appealed.  

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).