On April 6, 2015, the Sixth Circuit reversed a $657 million dollar judgment in United States v. United Technologies Corp., No. 13-4056, slip op. (6th Cir. Apr. 6, 2015) stating the district court erred in accepting the government's damage calculations because the calculations did not show an actual loss for the government. This ruling deals a blow to the Department of Justice and qui tam relators as it now requires them to prove an actual loss as opposed to simply calculating the "dollar-for-dollar" amounts by which the defendant inflated its cost and pricing estimates.

United Technologies is a case that has long been in development, originating with activities by Pratt & Whitney, now owned by United Technologies, in 1983. Pratt made false statements to the Air Force in the course of competing with GE Aircraft to supply the Air Force with engines for its F-15 and F-16 fighter jets, but these efforts failed. Pratt not only failed to obtain more business in the first year of the contract, but the fraud also did not go unnoticed. Two actions were then filed, with one being a 1999 action in federal court seeking relief under the False Claims Act and common law restitution.

The appeal on April 6 was the action's second appearance in the circuit court. The first appeal established that Pratt violated the False Claims Act, imposed $7 million in statutory fines, and also vacated the lower court's holding that the government suffered no damages, instructing the lower court to reconsider its damages calculation. On remand, the district court accepted the government's calculation of damages and awarded $657 million in damages. To reach this number, the government sought dollar-for-dollar damages corresponding to the exact amount that Pratt had doctored its false cost estimates after taking into account treble damages as well. The lower court did not accept Pratt's arguments that the government's calculation did not take into account the impact of competition on fair market value, including comparable prices paid to GE Aircraft for its jet engines. The court felt the fighter jet engine market was insufficiently competitive to rely on comparable sales as a factor to determine fair market value.

The deciding issue that led to the Sixth Circuit's most recent remand was that the government's damages award was not supported by the evidence given the government expert's refusal to account for the competition between GE Aircraft and Pratt. The Sixth Circuit pointed out that reliance on the government's price estimates "refused to consider either the role that competition between Pratt and GE Aircraft (among other factors) played in determining reasonable and fair prices, or whether that competition and the prices that resulted from it eliminated any damages to the government." The Court therefore instructed the use of the comparable sales analysis even though the fighter jet engine market was heavily regulated and did not have an abundance of competition. It was also noted that government's presumption that each dollar of overstated costs translates into a dollar of damages was incorrect.

The Sixth Circuit's ruling now requires the government to show that damages did occur, considering a fair market value pricing model that takes into consideration competition between market participants. Again, this is a definitive statement about the level of proof necessary to sustain damages that deals a blow to the government and relators. Whereas the Department of Justice would rather just be able to show that the defendant has defrauded the government and charge them for such fraud, the statement the Sixth Circuit has made in United Technologies will require more work, and subsequently make it more difficult, for the government to establish damages.

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