On April 6, 2015, the Sixth Circuit delivered a costly blow to the United States government to the tune of $657 million when it issued its opinion in United States v. United Technologies Corporation and remanded the case back to the district court to review the damages award, yet again.
This was the second time that the Sixth Circuit heard arguments deriving from the United States False Claims Act case against Pratt & Whitney (“Pratt”), now owned by United Technologies, for false statements the company made when competing against GE Aircraft for contracts to build F-15 and F-16 jet engines. In 1983, in an attempt to outbid GE Aircraft and make it hard for the government to issue a split-award contract, Pratt misstated its projected costs and certified that the company’s bid included its “best estimates and/or actual costs.” After uncovering Pratt’s overstated costs projections, the government filed both an administrative action against the company in the Armed Services Board of Contract Appeals (“ASBCA”) under the Truth in Negotiations Act and a lawsuit in district court alleging violations of the False Claims Act.
Unsuccessful in its administrative proceeding for failing to meet its burden of demonstrating that Pratt’s false statements led to higher prices, the government had slightly better luck in district court – Pratt was fined $7 million but not required to pay any damages. During the first appeal, the Sixth Circuit remanded the case back to the district court to reevaluate its no-damages determination and, in doing so, to consider the “fair market value” of Pratt’s engines. The circuit court cautioned that it may not necessarily lead to a different conclusion regarding damages. On remand, “the government received an upgrade” when the court awarded it $657 million in damages.
In this most recent appeal, the Sixth Circuit found that, while Board of Appeal’s determination did not bar the government’s damages claim, the lower court erred in its damages determination. Most importantly, the court failed to use a pricing expert to consider whether the competition between Pratt and GE impacted “reasonable and fair prices” or entirely eliminated damages to the government. Additionally, the court found that Pratt sufficiently rebutted the presumption that the government was entitled to one dollar of damages for every dollar of overstated cost. In the end, the Sixth Circuit, after systematically rejecting each of the government’s arguments supporting the hefty damages determination, reluctantly remanded the case back to the district court for a third time to determine proper damages.
For additional information, the Sixth Circuit’s decision can be found at: http://www.opn.ca6.uscourts.gov/opinions.pdf/15a0062p-06.pdf