Defendant May Have Made a False Claim, But that Doesn’t Mean the Government Received Nothing of Value

The defendant made false representations about a product’s compliance with industry standards. The court imposed statutory penalties under the FCA but not actual damages. The plaintiffs had not shown the items failed or that they would even be replaced.

Hendrix ex rel. United States v. J-M Manufacturing Company, Inc., 9th Cir., Nos. 21-56276, 31-56288

• District Court Proceedings – A relator brought a qui tam action, alleging the defendant violated the FCA by representing its PVC pipes complied with industry standards. A jury found the defendant liable, but couldn’t reach a verdict on damages. Instead, the court entered judgment as a matter of law, finding the defendant liable for statutory penalties but not actual damages. All the parties appealed.
• Falsity – On appeal, the defendant argued the plaintiff hadn’t proved falsity. The defendant reasoned the plaintiffs had not shown that any particular piece of pipe didn’t comply with industry standards. The Ninth Circuit rejected the argument. The defendant’s own testing showed at least 50% of its pipe didn’t meet industry standards. The government had almost certainly received pipe that didn’t comply. Moreover, industry compliance for PVC pipe requires the manufacturer used the same standards it used when it initially obtained compliance. Here, the defendant had changed its standards after initial compliance.
• Statutory Penalties – The district court assessed statutory penalties for each of the of the 26 projects on which the defendant used non-compliant pipe. The plaintiffs argued the court should’ve imposed penalties for each piece of pipe. But the Ninth Circuit sided with the district court. A finding of falsity did not mean that every section of pipe was noncompliant. The plaintiffs had not, in fact, established how much pipe was noncompliant.
• Actual Damages – The plaintiffs argued they should have received actual damages for the entire amount paid of the pipe. The Ninth Circuit disagreed. The proper measure of damages is the difference between the value of goods provided and the value represented. Here, the plaintiffs had not proved the pipe it received was valueless or that it failed. In fact, the plaintiffs were still using the noncompliant pipe. The plaintiffs had not provided any evidence from which once could reasonably determine the value of the pipe received.

–Case summary by Craig LaChance, Senior Editor