U.S. Appeals Court Reverses Gross Trebling of False Claims Damages
On March 21, the U.S. Court of Appeals for the Seventh Circuit upheld the district court’s decision to find Anchor Mortgage Corporation and its CEO John Munson liable for false claims submitted in loan guaranty applications to the U.S. government, but reversed the “gross trebling” calculation of the damages in favor of “net trebling,” which reduced the total recovery.
In 2010, the federal district judge found Anchor Mortgage Corporation guilty of lying when applying for federal guarantees of 11 loans, and therefore liable for treble (triple) damages under the False Claims Act. The judge calculated damages by totaling the amounts that the government paid to lenders under the federal guarantees, trebling it, then subtracting any collateral (in this case, real estate that had been sold). According to the appellate decision, as an example,
[T]he Treasury paid $131,643.05 on its guaranty of a particular loan. Three times that is $394,929.15. The real estate mortgaged as security for that loan sold for $68,200. The judge subtracted the sale price from the trebled guaranty; the result of $326,729.15 represented treble damages. To this the judge added the $5,500 penalty, for a total of $332,229.15.
The defendants proposed a different approach: beginning with the total of the federal guarantees, immediately subtracting the collateral, and then trebling the amount. The defendants’ example results in a significantly smaller amount of damages:
Like the district judge, they start with $131,643.05, but they immediately subtract the $68,200 that the United States realized from the collateral. The net loss is $63,443.05. Treble that, and the result is $190,329.15. Add $5,500 for a total of $195,829.15.
The appeals court affirmed Anchor’s guilt in the matter, but reversed the district judge’s “gross trebling” of the damages in favor of the defendants’ “net trebling,” noting that while the False Claims Act does not specify either a gross or a net trebling approach, “the norm is net trebling.”
The False Claims Act allows whistleblowers to bring suit on behalf of the U.S. government and share in the recovery. The Chanler Group, in association with the Hirst Law Group, has years of experience representing whistleblower clients who expose every kind of fraud against the government, including health care fraud, contract fraud, and tax fraud. Read more about our expertise in False Claims Act cases and how you can take action.