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The district court granted the defendant’s motion for judgment as a matter of law related to the damages portion of a qui tam case. During phase one of the bifurcated trial, the jury found in favor of the plaintiffs, finding the defendant provided noncompliant goods to government buyers. However, prior to the damages phase, the defendant filed a motion for a Daubert review of the plaintiffs’ expert witness testimony and a motion for judgment as a matter of law. The defendant argued the plaintiffs had not provided sufficient evidence for the jury to determine fair damages. The court agreed, finding that the plaintiffs failed to demonstrate that the noncompliant goods had little or no value, while also failing to quantify the difference in value between the noncompliant goods and those that would have satisfied the contract requirements. The plaintiffs argued the noncompliant goods would need to be replaced much sooner than expected and at great expense, but the court found no practical evidence to support that contention. The court also struck the testimony of several expert witnesses. While the witnesses credibly demonstrated the noncompliant goods failed to meet certain industry standards, the court found no connection between the tests and the relative longevity or value of the noncompliant goods, such that damages could be calculated.

J-M Manufacturing Company filed a motion for judgment as a matter of law related to the damages portion of a qui tam case alleging the company violated the False Claims Act by providing noncompliant PVC pipe to government customers.

The court bifurcated the trial proceedings, with the initial trial being limited to liability as to the claims of five exemplar plaintiffs. After a trial in Phase One, the jury found in favor of the plaintiffs on all issues and as to the 26 projects where claims had been submitted. However, during the Phase Two trial on damages, the jury was not able to reach a verdict and the court declared a mistrial.

In these proceedings, the court addressed whether the plaintiffs presented sufficient evidence for a reasonable juror to come out in their favor regarding the theory of damages presented at the end of trial. In other words, the question is whether, based on the evidence presented at trial and with all prior rulings taken into consideration, a reasonable juror could award some amount of actual damages that would not be totally unfounded or purely speculative based on the liability found in Phase One. The court found the defendants made some persuasive arguments about a lack of evidence at trial and noted the plaintiffs would have to show they presented the jury with a basis to award some damages figure founded on more than pure speculation.

The plaintiffs filed a brief stating that their damage theory was benefit of the bargain, meaning the difference between the price the plaintiffs paid for pipe manufactured by J-M, which was undisputed at trial, and the value of the goods they received. The plaintiffs proffered two methods of quantifying the value of the pipe they received: (1) that because the pipe would fail early and need to be replaced at great expense, it had little to no value; and (2) that because no reasonable municipality would purchase noncompliant pipe, it had little to no market value.

The court addressed the latter argument first. The court rejected this contention, finding that a municipality’s decision not to purchase noncompliant items did not mean the items had little or no value. The court found that argument instead went to the issue of materiality, not to damages. According to the court, adopting the plaintiffs’ reasoning would require every losing defendant in an FCA case to refund the full contract price regardless of any evidence of actual damages, which in turn would be tripled. The plaintiffs cited other cases showing that materially non-conforming goods can have zero value, but the court found those cases rested on factors other than the willingness of a government purchaser to buy them.

Further, the court found the plaintiffs had not removed or contracted for the replacement of any of the pipe, nor ceased use of the pipe. Therefore, the court reasoned they had obtained and continued to receive some value. The court also found no evidence of any threat to life or property due to the use of the pipe. The court also noted there was no basis to concluded J-M was ineligible to receive the contracts in the first place, such that the full contract price would be the appropriate damages.

Next, the court considered the plaintiffs’ argument that they had provided a method for quantifying the value of the J-M pipe by establishing that the pipe would be subject to early failure and need to be replaced at great expense, from which the jury could conclude that the pipe had little to no value.

First, the court found this method unclear, as it did not conform to any formula for calculating damages in an FCA case, and was not consistent with the jury instructions in Phase Two. Second, even accepting the method as true, the court found it incorporated the concept of consequential damages which is not normally available in an FCA case. Third, assuming the plaintiffs intended to argue the difference in longevity between compliant and noncompliant pipe, the court found they failed to present evidence showing the longevity of compliant pipe for comparison purposes. In that vein, the plaintiffs also failed to show the amount of reduced longevity of the noncompliant pipe.

The court reasoned that the plaintiffs’ formula/methodology for establishing actual damages would have to show: (1) that the J-M pipe would fail early, (2) that it would need to be replaced, and (3) that such replacement would be at great expense. The court found this contention nebulous and incorrect under FCA law. Again, the court noted the plaintiffs provided no basis for comparing the longevity of the compliant and noncompliant pipe. Next, the court found the “need to be replaced” element nebulous. If the plaintiffs could prove the pipe would last for a shorter period of time, they would not need to show that the pipe would need to be replaced. In contrast, if they could not quantify longevity, they could not prove the pipe would indeed need to be removed and replaced.

Finally, the court found the final metric—the cost of replacing the pipe—wrong as a matter of law, as consequential damages are not recoverable under the FCA. The court cited to cases where the government was provided nonconforming parts and recovered only the contract price and penalties, without being compensated for the cost of purchasing replacement items. Congressional proposals to allow the government to recover consequential damages have never been adopted.

J-M also filed a post-trial Daubert Motion regarding the admissibility of the testimony of several of the plaintiffs’ expert witnesses, relating to the issue of the longevity of the noncompliant pipe. The court identified four factors underlying a Daubert review: 1) whether a theory or technique presented to the jury is testable scientific fact; 2) whether a theory has been subject to peer review and publication; 3) the potential rate of error of the theory; and 4) general acceptance of the theory.

The court engaged in a lengthy and highly-technical review of whether the testimony of four expert witnesses presented evidence that passed the Daubert test. The court struck the testimony of all four witnesses, generally on the grounds their statements were based on data that failed to meet all four criteria. In short, the court found that certain quality tests referenced by the witnesses were not required for the pipe L-M provided. The court also found the test themselves did not result in data that could be used to calculate the longevity of the pipe, but rather tested the materials prior to manufacture. In the case of one witness, the court noted he conceded that the was not an expert in the standards on which he testified. He also acknowledged that his theories had not been tested nor subject to peer review and publication.

Overall, the court noted that even without the above findings and the court’s decision to strike the expert testimony, the plaintiff’s failed to offer sufficient evidence for a reasonable jury to be able to calculate actual damages under the benefit of the bargain approach. The quality tests did not establish any predicted life span for compliant pipe and the relevant standards did not suggest that test failures would result in the pipe’s actually failing in normal use at a set point.

The court noted the plaintiffs did not themselves conduct any tests to ascertain the relationship between any of the standards and actual longevity of PVC pipe and, if there was any relationship, to determine the existence of any means to measure or calculate the effect of diminishing tests results on longevity. They also offered no studies or reports to that effect. While their expert witnesses discussed the standards, the court found the testimony was not relevant to the longevity issue and that none of the experts could articulate a damages figure. At best, the court concluded the evidence showed that compliant pipe had more long-term strength than noncompliant pipe, but that did not demonstrate any difference in the expected life of the goods.

Because the plaintiffs failed to provide evidence at the Phase Two trial from which a reasonable jury could make a finding of an award of actual damages under the FCA that would not be erroneous as a matter of law, be totally unfounded and/or be purely speculative, the court granted J-M’s motion for judgment as a matter of law.