The First Circuit declined to overrule a lower court’s denial of a relator’s request to amend the pretrial order to include a discussion of FCA damages after the conclusion of discovery and one-month prior to the trial’s start. While the relator was successful at trial, the jury imposed a single $5,500 civil penalty on the defendant, while the relator hoped to recover damages equal to three times the full contract price. The pretrial conference report contained no discussion of damages, and therefore neither court could say what the correct calculation might be. The relator argued that the report referenced the contract and the contract price, putting the defendant on notice of the amount of damages sought, and therefore an amendment would not be prejudicial. However, the courts explained that the total contract value was the not the basis for damages, because the government had received some of the benefit of its bargain, even though the work was shoddy. The circuit court agreed that the relator had not cleared the high bar for amending a pretrial order, particularly so late in the process.
Although a jury ruled in its favor and awarded a civil penalty, relator Concilio De Salud Integral De Loíza Inc. appealed the district court’s denial of its request, submitted after the close of discovery, to amend the pretrial order to include a discussion of damages it believes it was due under the False Claims Act.
Using funds provided by the American Recovery and Reinvestment Act, CSILO contracted with defendant J.C. Remodeling Inc. to make repairs to a healthcare facility. At the time, JCR was the exclusive distributor of a certain roof waterproofing product and offered a 15-year warranty on the product.
One year after the roof repairs were completed, the facility suffered damages from newly discovered water seepage, but JCR did not respond to CSILO’s requests for corrective action. After concluding JCR was unwilling to satisfy the terms of its warranty, CSILO took the defendant to court. JCR then acted on the repairs, but with a different waterproofing product, allegedly with the approval of CSILO.
Ultimately, CSILO concluded that it had not received the benefit of the promised 15-year warranty, because JCR had not provided the promised product for the repairs. CSILO believed JCR intentionally misrepresented its warranty and intentions to fraudulently induce CSILO to enter into the contract. CSILO alleged fraud and the illegal appropriation of federal funds under the FCA.
CSILO filed a qui tam complaint, asserting entitlement to FCA damages. However, the joint pretrial conference report did not mention anything specific to requested damages, such as a description, computation, or relevant evidence. Prior to the commencement of the trial, CSILO moved for leave to amend the pretrial order to include a discussion of damages. JCR objected, claiming delay and prejudice. The district court denied CSILO’s motion, noting that the plaintiff did not include a computation of damages in its initial disclosures; did not produce any evidence and/or computation of damages during discovery; and omitted from the pretrial report any specific request for discrete fraud damages as well as a discussion on the subject. Generally, the court found CSILO provided no compelling reason to justify the omissions. Because discovery was no longer available, to JCR’s detriment, the court denied the motion.
Nonetheless, a jury found in favor of CSILO on the FCA claims and imposed a single $5,500 civil penalty on JCR. Unhappy with the overall result, CSILO appealed.
In its appeal, CSILO argued the district court abused its discretion in rejecting its request, as well as its denial of the request for reconsideration. CSILO argued that JCR would not have been prejudiced or surprised by the damages amendment because JCR was always aware of the full contract price, which formed the nucleus of its damages claim: CSILO’s federal complaint requested damages equal to $405,000 (three times the contract price of $135,000), and the contract itself as well as the contract price was necessarily discussed multiple times during trial. Therefore according to CSILO, JCR’s claim of prejudice and surprise was disingenuous because JCR never—either pretrial or during trial—objected to the admission of the contract and its price tag at any point.
In response, JCR argued CSILO erred in assuming that the contract price automatically constituted the baseline damages due under the FCA, even though the FCA does no such thing. Because the parties could not rely on the contract price for damages, without the benefit of discovery on damages, JCR argued that CSILO’s request would be prejudicial and burdensome.
To reach its conclusion, the circuit court examined what damages are allowed under the FCA. The court noted the FCA states no specific calculation of how damages are to be calculated, but provides only that the government had to have suffered damages because of the violation. The committee that crafted the law believed courts should remain free to fashion damages on a case-by-case basis, guided by the principal that damages should be crafted to effect the remedial purposes of the act and that the government should recover its losses.
The court noted that, in general, damages are measured using a “benefit of the bargain” calculation, in which a determination is made of the difference between the value that the government received and the amount that it paid. However, in the cases cited by CSILO, an entire contract price was awarded as damages only where the contract provided no tangible benefit to the government and no intangible benefit could be calculated. As an example, the court cited a case involving a contract to provide research assistance to small businesses, which did not provide a tangible benefit to the government and where a monetary value could not be attached to the intangible benefit to the beneficiary businesses. In that case, the court awarded the full contract price as damages for the defendant’s fraud, because the government was out a fixed sum of money with no return, and therefore only the return of the full contract price could make the government whole.
The circuit court found that circumstance dramatically different from the one presented by CSILO. Although a jury concluded the work done by JCR was shoddy, the work was nonetheless completed and was not entirely valueless. However, without the benefit of evidence of damages, the court could not conclude what value, if any, to ascribe to the completed work. The court could not conclude CSILO was entitled to the full contract price, particularly because some work had been done.
Given the high bar set to amend a pretrial order and the lack of record evidence regarding the damages to which CSILO would have been entitled, the circuit court found no abuse of discretion in the district court’s conclusion that amending the pretrial order would be prejudicial to JCR, given the discovery had closed and the trial was about to begin. The court rejected the appeal.
