Trial Court Upholds Jury Verdict Deciding That Nonconforming Products Bought With Government Funds Were Worth Nothing But Scrap Value In A Case Declined By The Government

Damages under the False Claims Act are “3 times the amount of damages which the Government sustains because of the act of the person” plus a civil penalty of $5,500 to $11,000. Damages can be calculated several ways depending on the nature of the scheme. When contractors defraud the Government by supplying nonconforming products, damages are sometimes calculated under a benefit of the bargain theory.

As the benefit of the bargain theory goes, if the United States paid $10,000 for a part worth $10,000, but defendant supplied a nonconforming part worth only $1,000 that the United States kept, damages might be $9,000 for that part. That $9,000 would be trebled and the defendant would also owe a civil penalty.

However, the federal courts have held that when the United States receives a worthless product, it receives no benefit and damages are the entire contract value. A Texas trial court recently reaffirmed this principle in a case in which the Government declined to intervene that was prosecuted solely by a private relator.

After an October 2014 trial, a jury found that highway guardrail manufacturer Trinity Industries, Inc. and its subsidiary knowingly made false statements regarding guardrail end terminals purchased with Government funds, and that as a result, the Government was damaged in the amount of $175,000,000. United States ex rel. Harmon v. Trinity Industries, Inc., et al, No. 2:12cv-00089, at 41–42 (E.D. Tex. June 9, 2015).

At trial, the relator’s expert testified that damages amounted to either the $218,000,000 paid by the United States for the guardrail end terminals or $175,000,000, which was the amount paid by the United States minus the scrap value of the guardrail end terminals. Id. at 22–23. In a post trial motion, Defendant Trinity argued that this damages award was not properly supported because the relator’s expert did not properly trace the funds used by the United States to buy the guardrail end terminals. Id. at 23.

The trial court denied Trinity’s motion and upheld the damages award. The court explained that Trinity itself represented that it did not keep records of how much the Government paid for the guardrail end terminals and that in the absence of such information, the relator’s expert made reasonable estimates based on the information available from Trinity and the Government. Id. at 24–25. The trial court also affirmed that damages need not be calculated with mathematical precision; instead, a reasonable estimate is sufficient. Id. at 24.

On its website, Trinity reports that at the direction of the Government, an independent third party recently crash-tested its modified guardrail end terminals and found that they passed. Trinity also states that it intends to appeal.

Helmer, Martins, Rice, & Popham does not represent any parties to the Trinity case. Nevertheless, this decision is important for False Claims Act relators seeking to hold Government contractors liable for cutting corners and supplying nonconforming and dangerous products to the United States. If you are aware of efforts to shortchange the Government, contact us to discuss your options.