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Sixth Circuit Reverses Government’s $650 Million Verdict in False Claims Case

On Monday, the Sixth Circuit issued its published opinion in United States v. United Technologies Corp., the most recent appeal in several rounds of fraud litigation stemming from jet engine prices charged to the government over thirty years ago.

The case stemmed from prices charged by Pratt & Whitney (now part of United Technologies) to the government in competitive contracts with GE for fighter jet engines in the 1980s. The government’s first suit against Pratt in 1998 before the Armed Services Board of Contract Appeals ended in a decision favorable to Pratt. The government’s second action against Pratt in federal court ended in a Sixth Circuit decision establishing Pratt’s liability under the FCA to the tune of $7 million, but then a finding by the district court on remand that Pratt was liable for an additional $650 million.

In this second appeal—from the $657 million total judgment—the Sixth Circuit addressed two distinct issues. First at issue was whether the Board of Contract Appeals’ decision that “the Air Force relied on competition between GE Aircraft and Pratt” in evaluating the companies’ prices bound the district court for purposes of issue preclusion. Finding the Board’s decision to be ambiguous, the Sixth Circuit erred on the side of construing issue preclusion narrowly, and so held that the Board’s decision did “not bar the government’s damages claims under the False Claims Act and common law restitution.”

Addressing the second issue, the thrust of Pratt’s appeal, the Sixth Circuit held that the opinion below improperly disregarded the “role that competition between Pratt and GE . . . played in determining reasonable and fair prices” and “whether that competition [and resulting prices] eliminated any damages to the government.” In so holding, the Sixth Circuit rectified several misunderstandings of its opinion in the previous appeal: (1) the opinion did not require damages (it merely left their possibility open), (2) the opinion did not undermine factual conclusions in the district court’s first $7 million decision, and (3) in asking for a “fair market value” of the engines to determine whether the government actually suffered damages, the opinion “broke no new ground” on damages calculations.

Moving to the government’s five arguments for upholding the district court’s decision, the Sixth Circuit addressed each in turn. It held that: (1) Pratt had successfully rebutted the presumption that fraud on the government results in dollar-for-dollar damages; (2) Pratt objected to and thus did not forfeit the argument that its engines were actually comparable to GE’s; (3) Truth in Negotiations Act regulations did not establish that “cost plus a reasonable profit” established proper contract prices; (4) Pratt’s fraud did not make a price comparison with GE’s engines impossible; and (5) GE’s market entry costs also did not make price comparison impossible.

Writing for the majority, Judge Sutton noted, “[w]e are tempted to say that, after seventeen years of litigation about a fraud that occurred thirty-two years ago, the time has come to end this dispute”; however, the case will go back to the district court for a second—and likely final—time for a determination of the government’s proper damages.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume V, Number 100

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