Seventh Circuit Adopts "Net Trebling" Damage Calculation in False Claims Act Case

False Claims Act / FIRREA

On March 21, the U.S. Court of Appeals for the Seventh Circuit held that damages awarded in a False Claims Act case should have been calculated using a “net trebling” method. United States v. Anchor Mortgage Corp., No. 10-3122, 2013 WL 1150213 (7th Cir. Mar. 21, 2013). The court affirmed a district court holding that a defendant mortgage company violated the False Claims Act when it made false statements in applying for federal mortgage loan guarantees on eleven loans. The court also affirmed the district court’s holding that the government should be awarded treble damages, finding that the statutory provision that limits damages to double damages for a person who meets certain self-reporting requirements applies only with regard to the specific false claims on which the person self-reports. In this case, although the company had self-reported information on some false claims, it had not self-reported any information about the false claims on the eleven loans on which the government sought damages. The Seventh Circuit disagreed with the district court’s “gross trebling” calculation of damages. Under that method, the district court added together the amounts that the government had paid out on the guarantees on the eleven loans after they defaulted and then trebled that sum, before subtracting any amounts that the government had realized by selling the properties that secured the loans. The Seventh Circuit held that the district court should have employed a “net trebling” method, starting with the amount paid out by the government on a guarantee on a given loan, subtracting from that amount any money the government recovered by selling the property that secured the loan (or if unsold, the fair market value of the property held by the government), and then trebling the difference. In requiring the “net trebling” method, the court noted that most federal appellate decision have adopted that method, and that a Ninth Circuit decision to the contrary was unpersuasive and based on a misreading of the Supreme Court’s holding  in United States v. Bornstein, 423 U.S. 303 (1976).