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How to Calculate Damages and Penalties in a False Claims Act Case

March 21, 2024 Uncategorized

How to Calculate Damages and Penalties in a False Claims Act Case

Figuring out damages and penalties in a False Claims Act (FCA) case can be tricky. The FCA allows the government to recover treble damages and penalties for fraud against the government. But calculating those damages requires looking at the specific facts of each case.

This article will walk you through the key things to think about when calculating FCA damages and penalties. We’ll use plain English so it’s easy to understand – no legalese here!

What is the False Claims Act?

The FCA imposes liability on any person who knowingly submits false claims to the government. It was originally passed back in the Civil War to stop defense contractors from defrauding the Union Army.

The law lets the government recover:

  • Treble damages – that’s triple the amount of the government’s actual damages
  • Civil penalties between $5,500 and $11,000 per false claim

The FCA can apply to fraud in any government program – Medicare, defense contracts, disaster relief funds, etc. Any time someone knowingly lies to the government to get money they shouldn’t have, they can be liable under the FCA.

How Are FCA Damages Calculated?

The main goal in calculating FCA damages is to make the government whole – to put it in the position it would have been in if the fraud hadn’t happened. The law does this by making the defendant liable for triple the actual damages.

Figuring out the actual damages is the tricky part. There’s no one formula – it all depends on the specific facts and how the fraud hurt the government.

Here are some key questions to think about:

  • What did the government pay for the goods or services involved in the fraud?
  • What would the government have paid if it had known the truth?
  • Did the government get something of value, even if it was obtained fraudulently?
  • Were government funds diverted from their intended purpose?
  • Did the government incur investigation costs to uncover the fraud?

Let’s look at some examples:

Overcharging

This is one of the simplest FCA cases. Let’s say a defense contractor lies about its costs and overcharges the government $1 million for some parts. The actual damages are the $1 million overcharge. Triple that is $3 million in FCA damages.

Worthless Services

What if a Medicare provider bills for services that were never provided? Or does such a terrible job that the services were worthless? Here the actual damages are the entire amount the government paid.

For example, Medicare pays $500,000 for mental health counseling that never happened. The actual damages are the whole $500,000, tripled to $1.5 million in FCA damages.

Fraudulent Inducement

Sometimes there’s fraud in obtaining a contract or grant, even if the services are provided as required. Like if a company lies to get a Small Business Administration loan, but pays it back on time. Or lies about qualifications to win a defense contract, but delivers the weapons as specified.

In these cases, the damages may be calculated as the difference between what the government actually paid and what it would have paid knowing the truth. The idea is to recover the “tainted” portion of the funds.

For example, if the government pays $10 million for a contract it would not have awarded but for the fraud, the actual damages are the entire $10 million. Even though the services were provided, the payment was “fraudulently induced.”

Diversion of Funds

Sometimes fraud causes the government to pay funds that are then diverted from their intended purpose. A common example is in grant fraud – like an education grant used improperly for other expenses.

Here the actual damages are the amount diverted from its proper use. If $500,000 of a $1 million grant is misused, the actual damages are $500,000.

Government Investigation Costs

The government can also recover damages for the costs of investigating and responding to the fraud. Things like auditing expenses, employee time, legal costs, etc.

These expenses get added to the actual loss amount. So if the government’s investigation costs $100,000, that increases the actual damages.

How Are FCA Penalties Calculated?

In addition to damages, the FCA imposes civil penalties for each false claim. The law sets the penalty range – it’s currently $5,500 to $11,000 per claim.

The key question is: How many false claims did the defendant submit? This isn’t always straightforward.

Some key things to think about:

  • Each separate submission can count as a false claim – like individual invoices or payment requests.
  • But there can be exceptions, like if false statements were made in an application process but then all payments flowed from a single contract.
  • The number of penalties can be reduced for cooperative defendants, small businesses, or cases with lower damages.
  • Courts have discretion on how many penalties to impose within the statutory range.

The penalties add up quickly since each false claim carries a penalty. A Medicare fraud case might involve thousands of false billing statements, racking up millions in penalties.

Proving the right number of false claims is key. It requires digging into the evidence and being able to show each one. This is an area where legal expertise can really pay off in an FCA case.

How Can Defendants Reduce FCA Damages and Penalties?

The FCA has provisions to reduce damages and penalties for cooperating defendants. The main ways for defendants to reduce their exposure are:

  • Self-disclosing the fraud – This can reduce damages from treble to double if the government was not already aware of the issues.
  • Cooperating in the investigation – Defendants who fully cooperate may get lower penalties and may avoid charges altogether.
  • Proving inability to pay – Defendants who can show an inability to pay the full damages and penalties may get them reduced.

The key is getting experienced FCA counsel involved early. An attorney can advise on the best ways to disclose the fraud, cooperate with investigators, and gather evidence of inability to pay.

Acting quickly also helps. The government is most likely to compromise if the defendant moves fast to disclose and settle the issues.

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