782 F.3d 718
6th Cir.2015Background
- In 1983 Pratt & Whitney (United Technologies) submitted falsified cost/pricing data in its BAFO to the Air Force while competing with GE for F-15/F-16 engine contracts. Pratt certified its BAFO as accurate.
- The Air Force split awards between Pratt and GE and ran annual “calls for improvement,” producing substantial year‑to‑year price reductions and shifting production shares between the firms.
- The government pursued two tracks: a 1998 ASBCA/Truth in Negotiations Act (TINA) action (no retroactive price reduction awarded because the Board found the Air Force relied on competition, not the BAFO data) and a 1999 federal suit under the False Claims Act (FCA) and restitution.
- The district court initially found FCA liability (statutory penalties of $7M) but no damages; the Sixth Circuit vacated the no‑damages ruling and remanded to calculate damages against a fair‑market‑value benchmark.
- On remand the district court awarded $657M (treble FCA damages, restitution, interest) based on the government’s auditor expert (Zacheretti), who did not adjust for the market competition or compare Pratt’s prices to GE’s; the Sixth Circuit reverses and remands for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Issue preclusion from ASBCA/Fed. Cir. competition finding | ASBCA finding that the Air Force relied on competition should not bar FCA/restitution damages here; government urged re‑litigation | Pratt argued the Board’s finding that competition controlled outyear prices precludes relitigation of causation/damages | Court: ASBCA finding ambiguous; issue preclusion does not apply—Board did not clearly decide exclusivity of competition for all pricing, so government may litigate damages here |
| Proper damages benchmark (fair market value) | Government urged dollar‑for‑dollar reduction based on overstated costs (Zacheretti’s pro rata method) | Pratt argued damages must be measured against fair market value accounting for competition and comparable sales (e.g., GE prices) | Court: District court erred by adopting Zacheretti without accounting for competition; damages must be measured against fair market value and comparable‑sales evidence where appropriate |
| Role of competition and comparables (GE prices) | Government contended market thinness and regulation make GE sales noncomparable; also argued GE prices might be tainted | Pratt argued the procurement was head‑to‑head and GE prices are the natural comparable to determine fair market value | Held: Competition and GE prices are highly relevant; comparable‑sales is the preferred method to prove fair market value and district court wrongly dismissed comparables as a matter of law |
| Valuation of warranties bundled with engines | Government treated renegotiated warranty prices as arms‑length value offsetting damages | Pratt argued warranties were part of a bundled scheme and their renegotiated price does not equal fair market value of the bundle | Held: District court erred valuing warranties solely at renegotiated prices; fair‑market‑value analysis should consider the contract as a bundle and adjust for differences in coverage |
Key Cases Cited
- Wynne v. United Techs. Corp., 463 F.3d 1261 (Fed. Cir. 2006) (issues about TINA causation and reliance)
- United States v. United Techs. Corp., 626 F.3d 313 (6th Cir. 2010) (prior Sixth Circuit opinion remanding to calculate damages using fair market value)
- United States v. Bornstein, 423 U.S. 303 (1976) (benefit‑of‑the‑bargain principle in fraud/damages)
- United States v. 564.54 Acres of Land, 441 U.S. 506 (1979) (definition of fair market value)
- United States v. 103.38 Acres of Land, 660 F.2d 208 (6th Cir. 1981) (comparable‑sales as preferred method to establish fair market value)