On August 8, the Ninth Circuit issued a key decision clarifying two important aspects of damages under the False Claims Act (FCA) in the government procurement context.

The Ninth Circuit’s holding limits potential damages government contractors may face.

1. Statutory penalties tied to number of invoices: The court held that the number of statutory penalties under the FCA and similar state statutes should be tied to the number of fraudulent contracts or invoices at issue—not the number of defective goods provided under the contract.
2. Damages means lost value in goods: The court held that actual damages under the FCA should only cover the entire amount paid under a contract if the goods provided under a contract had absolutely no value at all.

The relator in the qui tam action, U.S. ex rel. Hendrix v. J-M Manufacturing Co., alleged that the defendant manufactured and sold PVC pipe to several public agencies across the country despite knowing its PVC pipe failed to comply with industry standards used to estimate the lifespan of plastic pipe material.

The U.S. District Court for the Central District of California bifurcated the trial, and in Phase One the jury rendered a unanimous verdict against the defendant, finding that each of the defendant’s claims was false

Phase Two focused on whether the plaintiffs suffered damages from receiving non-compliant PVC pipe. But Phase Two ended in a mistrial after the jury was unable to reach a verdict. The district court thereafter...

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