United States Ex Rel. Wall v. Circle C Construction, LLC, 868 F.3d 466

Background

Circle C Construction built 42 Army warehouses; a subcontractor (Phase Tech) underpaid two electricians about $9,900 over seven years, making certain compliance statements false. Phase Tech paid $15,000 to settle the underpayment.
The government sued under the False Claims Act and sought $553,807.71 in actual damages (trebled to about $1.66 million) based on a theory that all Phase Tech electrical work was "tainted" and therefore valueless.
On prior appeal this Court reversed a large judgment for the government and held actual damages were $9,916 (the wage shortfall), awarding $14,748 on remand.
Circle C moved under 28 U.S.C. § 2412(d)(1)(D) (incorporated into FCA suits by 31 U.S.C. § 3730(g)) for fees because the government’s original demand was substantially in excess of and unreasonable compared to the judgment obtained.
The district court denied fees; the Sixth Circuit majority reversed, holding the government’s demand was both substantially in excess of the judgment and unreasonable, and that the government failed to prove bad faith or special circumstances that would bar fees.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Applicability of §2412(d)(1)(D) to FCA suits via §3730(g)	Circle C: §3730(g) incorporates §2412(d), so §2412(d)(1)(D) applies	Government: §3730(g) references fees to "prevailing defendant," and Circle C was not a prevailing defendant on remand	Court: Text of §3730(g) plainly incorporates §2412(d); titles cannot limit statutory text—§2412(d)(1)(D) applies
Whether the government’s demand was "substantially in excess" of the judgment	Circle C: Government demanded ~$1.66M vs. $14,748 judgment — clearly substantially in excess	Government: Contended its damages theory justified larger demand	Court: The numeric disparity plainly shows the demand was substantially in excess
Whether the government’s demand was "unreasonable" compared to the judgment	Circle C: Demand unreasonable because it treated Phase Tech’s entire electrical work as worthless despite the government using the buildings daily; actual damages calculable as the $9,916 wage shortfall	Government: Its "taint" theory was reasonable and had been accepted by courts earlier	Court: Demand was unreasonable — the position was not justified to a degree that would satisfy a reasonable person; prior acceptance by courts does not alone show reasonableness
Whether exceptions (bad faith or special circumstances) prevent fee award	Circle C: No bad faith or special circumstances; district court’s denial rested on erroneous reasonableness finding	Government: Circle C acted knowingly/recklessly; special circumstances include allowing novel but credible theories and avoiding chilling enforcement	Court: Government failed to prove bad faith or special circumstances; reckless FCA liability is not the same as "bad faith"; fee award appropriate

Key Cases Cited

United States ex rel. Wall v. Circle C Constr., LLC, 813 F.3d 616 (6th Cir. 2016) (prior Sixth Circuit decision rejecting government’s "taint" theory and calculating actual damages)
Pierce v. Underwood, 487 U.S. 552 (1988) (EAJA standard: "substantially justified" means "justified to a degree that could satisfy a reasonable person")
Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (2005) (statutory titles do not limit plain text of statutes)
United States v. One 1997 Toyota Land Cruiser, 248 F.3d 899 (9th Cir. 2001) (burden and elements under §2412(d)(1)(D))
U.S. ex rel. Roby v. Boeing Co., 302 F.3d 637 (6th Cir. 2002) (actual damages as difference between bargain and received)
United States v. Rogan, 517 F.3d 449 (7th Cir. 2008) (example of large-scale FCA fraud context)
U.S. ex rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296 (6th Cir. 1998) (cases supporting broader "taint" theories)
United States v. Mackby, 339 F.3d 1013 (9th Cir. 2003) (cases addressing valuation/taint theories)