Close this search box.

Because of: “FCA Damages and Penalties”, American Conference Institute, False Claims Act Enforcement & Litigation

Since most FCA cases are settled1 and those cases that are litigated principally involve issues of liability (e.g., falsity, presentment) or jurisdiction (e.g., public disclosure), relatively little jurisprudence deals with the calculation of damages under the Act — specifically the phrase “3 times the amount of damages which the government sustains because of the act of that person. . . .” 31 U.S.C. § 3729(a). A recent Supreme Court opinion in a securities fraud case may shed some light on how the courts may interpret the “because of” requirement in the Act. In that case, the Court held that “A private plaintiff who claims securities fraud must prove that the defendant’s fraud caused an economic loss. We consider a Ninth Circuit holding that a plaintiff can satisfy this requirement – a requirement that courts call ‘loss causation’ – simply by alleging in the complaint and subsequently establishing that ‘the price’ of the security ‘on the date of purchase was inflated because of the misrepresentation.’ In our view, the Ninth Circuit is wrong, both in respect to what the plaintiff must prove and in respect to what the plaintiffs’ complaint here must allege.”  While there are unique aspects to securities fraud actions, there is substantial similarity between the statutory and common law concepts discussed by the Court in Dura Pharmaceuticals relating to causation and the “because of” requirement in the FCA. According to the Department of Justice, the United States government recovered more than $650 million from October 1, 2003 through September 30, 2004 in cases brought under the False Claims Act (FCA) — down sharply from the $2.2 billion recovered in the previous fiscal year.2 More than $13 billion has been recovered from 1986 to October 2004. 3 This steady stream of revenue flowing into the government’s coffers is likely to continue apace as qui tam actions flourish and the False Claims Act’s reach continues to expand beyond its origins as a weapon against military procurement fraud. The remarkable recoveries generated by the False Claims Act are attributable in part to its somewhat unique damages and penalties provisions. These provisions can yield forfeitures vastly out of proportion to the alleged violation and, because of this heightened litigation risk, tend also to force settlements in cases that defendants might otherwise litigate and win. Much of the FCA’s power therefore derives from its potential for quasi-criminal sanctions that have less to do with remediation than with simple punishment. Because of the potential for draconian sanctions under the FCA, its damages and penalties provisions are often vigorously contested. This paper surveys the evolving state of the law as courts struggle to interpret and apply these provisions to an ever-broadening range of conduct.

Co-Authors: Brian C. Elmer, Andy Liu.

Subscribe to our Insights

Follow Us