The standards for liability under the FCA and the VFATA are quite different from under other causes of action. This blog post focuses on one of my personal favorite FCA opinions: Young-Montenay, Inc. v. United States, 15 F.3d 1040 (Fed. Cir. 1994).
If anyone were to assemble a case book of important decisions delineating the principles of the Federal False Claims Act, Young-Montenay would be at the very top of the list. Why? Because I do not know of any other case that does such a good job of illustrating (1) the level of wrongdoing necessary to make a claim false and (2) the nature of the differences between damages under the FCA and damages under traditional causes of action.
The facts of the case are as follows:
Young-Montenay contracted with the government to install boiler equipment at a VA medical center in Tennessee. The ultimate cost of the boiler equipment Young-Montenay agreed to install was $153,000; however, Young-Montenay’s supplier (a company named Keeler) failed to send all of the equipment Young-Montenay ordered. The result of that was that in addition to receiving only part of the equipment, Young-Montenay only received a partial invoice. The specific amount of the partial invoice was $104,000, with the remaining $49,000 due and owing upon delivery of the full order.
There was no dispute that the government had agreed to reimburse Young-Montenay the amount of $153,000 for the cost of the equipment. There was also no dispute that Young-Montenay’s supplier made a partial delivery of the equipment and issued an invoice for $104,000.
What Young-Montenay did next, however, was the gravamen of the case: a Young-Montenay employee named Eisenhut doctored the invoice received from Keeler by replacing the $104,000 with $153,000 (i.e., the correct amount Young-Montenay would ultimately need to pay to the supplier for the equipment.)
Why would Mr. Eisenhut and Young-Montenay do such a thing? The answer is simple. Young-Montenay hoped to get the money to buy the rest of the equipment without paying it out of pocket. This is by the way a very common type of false claim.
As the Court said:
It is immaterial whether Eisenhut believed Young-Montenay would subsequently owe Keeler $153,000.00, for at the time of the submission of the invoice to the government, he knew Young-Montenay then owed Keeler only $104,000.00.
In other words, Eisenhut knew the claim was false at the time he made it, and so it does not matter if it will ultimately be correct.
The United States obtained summary judgment against Young-Montenay for damages in the amount of $147,000 and a single civil penalty of $5,000. On appeal, Young-Montenay argued that the government had not sustained any actual damages as a result of the forged invoice, other than the interest it could have earned on the $49,000 had the government not paid the money too early.
The Court rejected the argument that the government had not sustained damages. The Court reasoned that the government had lost the use of the overpaid money. Second, once Young-Montenay was overpaid, the Court concluded, it had less incentive to finish the project in a timely manner. Indeed, this eventually turned out to be the case, because Young-Montenay was roughly 1,180 days late in finishing the project.
To those two compelling reasons for FCA liability, the Court could have added a third category of damages always incurred by the government, although these damages are somewhat more difficult to quantify–namely, a loss of respect for the government and its institutions. Arguably, this is the most pernicious type of damage arising out of a false or fraudulent claim.