On August 30, the U.S. Court of Appeals for the D.C. Circuit held, as a matter of first impression, that damages in False Claims Act cases are subject to pro tanto (dollar-for-dollar) settlement offsets in cases involving multiple jointly and severally liable defendants.
The government alleged in United States v. Honeywell International, Inc. that three defendants were jointly and severally liable for a fraud scheme in which the defendants allegedly sold faulty bulletproof vests to the government, allegedly resulting in $11.5 million in single damages and approximately $35 million in treble damages. The government settled with two defendants for a total of $36 million, but Honeywell held out. Honeywell then moved for summary judgment on damages, arguing that under the pro tanto rule, the government’s potential damages must be reduced dollar-for-dollar by the previous settlements—meaning Honeywell would pay no damages even if the government’s allegations were true. The government argued that regardless of the prior settlements, Honeywell was liable for its proportionate share (to be determined at trial) of the $35 million treble damages amount.
The D.C. Circuit sided with Honeywell and held that the pro tanto rule applies in FCA cases. The D.C. Circuit “recognize[d] that in cases such as this where the government has already recouped its full damages from settling parties, a non-settling party like Honeywell will escape paying damages under the pro tanto rule.” Yet it found that “consistent with the FCA, the pro tanto rule leaves the government in the driver’s seat to pursue and punish false claims according to its priorities.” The D.C. Circuit also noted that its holding did not affect the government’s ability to seek the imposition of statutory penalties—which in some cases can be significantly higher than the government’s damages—against non-settling defendants.
The D.C. Circuit ruling bars the government from obtaining a windfall in cases involving multiple settling defendants. It remains to be seen whether the adoption of the pro tanto rule will affect how defendants in multi-defendant cases approach settlement.
If you have any questions about False Claims Act damages, please contact a member of Bass, Berry & Sims’ Healthcare Fraud & Abuse team. Please also check out other posts on this blog where we dive deeper into other specific aspects of the False Claims Act.