2nd Circuit Court of Appeals Rules on Proper Measure of Damage in Grant Fraud Case

 

In U.S. ex rel. Feldman v. Gorp and Cornell Univ. Medical Colleges, 2012 U.S. App. LEXIS 18667 (2nd Cir. Sept 5, 2012), the United States Court of Appeals for the Second Circuit in an opinion authored by Judge Robert D. Sack upheld a trial court ruling that the proper measure of damages in a False Claims Act case involving a government grantee’s substitution of non-conforming goods or services is the entire amount of the grant money disbursed following the grantee’s making of material false statements on its grant application.

Allegations and Procedural History: The relator in this action alleged that Cornell University Medical College and a Cornell faculty member made false statements to obtain a grant and grant renewals from the National Institutes of Health for a “Neuropsychology of HIV/AIDS Fellowship Program.” According to the qui tam plaintiff, the fellowship program’s curriculum, resources, faculty members, and training differed significantly from that described in the defendants’ grant and grant renewal applications. After the United States declined to intervene in the action, the qui tam plaintiff proceeded to litigate the case and won a judgment at trial equal to the entire value of the grant disbursed following the three grant renewal applications that the jury deemed to be materially false. Defendants appealed.

Ruling on Measure of Damages: The Court of Appeals upheld the district court’s ruling on damages, adopting the position of the relator, as well as the United States as amicus curiae, that:

The government receives nothing of measurable value when the third-party to whom the benefits of a governmental grant flow uses the grant for activities other than those for which funding was approved. In other words, when a third-party successfully uses a false claim regarding how a grant will be used in order to obtain the grant, the government has entirely lost its opportunity to award the grant money to a recipient who would have used the money as the government intended.

Id. at *28-*29. In the case before it, the Court of Appeals determined that “the government did not receive less than it bargained for; it did not get the ‘neuropsychology with a strong emphasis upon research training with HIV/AIDS’ program it bargained for at all. Further, nothing in the record indicates that it could now secure such a program at any lesser cost.” Id. at *36. Accordingly, the Court ruled that “the appropriate measure of damages in this case is the full amount the government paid based on materially false statements.” Id.

This well-reasoned opinion by the Second Circuit is in accord with a line of similar rulings in other judicial circuits. See United States v. Science Applications International Corp., 626 F.3d 1257, 1279 (D.C. Cir. 2010); United States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458, 473 (5th Cir. 2009); United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008) (“The government offers a subsidy . . . with conditions. When the conditions are not satisfied, nothing is due.”); United States v. Mackby, 339 F.3d 1013, 1018-19 (9th Cir. 2003) (“Had Mackby been truthful, the government would have known that he was entitled to nothing . . . .”).