United States v. Science Applications International Corp.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 21, 2010 Decided December 3, 2010

No. 09-5385

UNITED STATES OF AMERICA,

APPELLEE

v.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(No. 1:04-cv-01543)

Theodore B. Olson argued the cause for appellant. With

him on the briefs were Matthew D. McGill, Amir C. Tayrani,

Ryan J. Watson, Richard O. Duvall, Jennifer A. Short,

Lawrence E. Ruggiero, and John P. Rowley III.

Robin S. Conrad, Amar D. Sarwal, James J. Gallagher,

and Susan A. Mitchell were on the brief of amicus curiae the

Chamber of Commerce of the United States of America in

support of appellant.

Jessie K. Liu, David A. Churchill, and Matthew E. Price

were on the brief of amicus curiae the National Defense

Industrial Association in support of appellant.

2

Thomas M. Bondy, Attorney, U.S. Department of Justice,

argued the cause for appellee. With him on the brief were

Ronald C. Machen Jr., U.S. Attorney, and Douglas N. Letter,

Attorney. R. Craig Lawrence, Assistant U.S. Attorney,

entered an appearance.

Before: SENTELLE, Chief Judge, TATEL and GRIFFITH,

Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: In this case a jury found, among

other things, that appellant, a major government contractor,

violated the False Claims Act (FCA), 31 U.S.C. § 3729, by

seeking payments at the same time it knew it was violating

contractual provisions governing potential conflicts of

interest. On appeal, the contractor principally argues that no

liability may attach for its claims for payment because its

contract nowhere designated compliance with these conflict

of interest requirements as express conditions of payment. As

we explain in this opinion, however, requests for payment can

be “false or fraudulent” under the FCA when submitted by a

contractor that has violated contractual requirements material

to the government’s decision to pay regardless of whether the

contract expressly designates those requirements as conditions

of payment. We nonetheless vacate the judgment as to FCA

liability and remand for a new trial because the district court’s

“collective knowledge” instruction conflicted with the FCA’s

scienter standard, the proper application of which is critical to

ensuring that FCA liability attaches only for false or

fraudulent claims and not for accidental or even negligent

breaches of contract.

3

I.

The Nuclear Regulatory Commission (NRC) is an

independent federal agency that regulates the civilian use of

nuclear materials. Pursuant to its general authority, the NRC

oversees the release into interstate commerce of commercially

valuable recycled radioactively contaminated materials from

nuclear facilities. Companies wishing to release such

materials must obtain an NRC license and comply with

license restrictions. Beginning in the mid-1980s, however,

the NRC sought to establish standards for unrestricted release

by setting contamination levels that were below “regulatory

concern.” Am. Compl. ¶ 11. After the NRC’s initial efforts

encountered Congressional and public opposition, the agency

commenced new studies aimed at developing scientific

criteria that could inform a future rulemaking to set uniform

national standards on the recycling and release of radioactive

materials.

Appellant Science Applications International Corporation

(SAIC), a scientific, engineering, and technology applications

company, entered into a contract with the NRC in 1992 to

provide technical assistance and expert analysis to support the

agency’s potential rulemaking. SAIC performed multiple

tasks under the contract, delivering several reports, including

both a literature review and a regulatory options paper that the

NRC published in 1999. In the options paper, SAIC

calculated radiological dose assessment estimates for

materials recycled and released from nuclear facilities. In

1999, SAIC and the NRC executed a follow-on contract to

allow the company to continue its work in support of the

agency’s rulemaking.

The 1992 and 1999 contracts included several provisions

designed to identify and prevent potential conflicts of interest.

Because the two contracts are substantially identical for all

4

purposes relevant to this litigation, we shall refer only to the

1992 contract. SAIC’s contract imposed limitations on the

company’s ability to “work for others” during the contract

term. Specifically, SAIC agreed to “forego entering into

consulting or other contractual arrangements with any firm or

organization, the result of which may give rise to a conflict of

interest with respect to the work being performed under [the]

contract.” If SAIC had “reason to believe with respect to

itself or any employee that any proposed consultant or other

contractual arrangement with any firm or organization may

involve a potential conflict of interest,” the contract obliged

SAIC to obtain the NRC’s prior written approval. The

contract also included disclosure obligations that required

SAIC to “warrant[] to the best of its knowledge and belief”

that it had no “organizational conflicts of interest” and would

make “an immediate and full disclosure in writing” if it

discovered such conflicts after the contract award. In the

event SAIC disclosed a conflict, the contract required it to

provide a mitigation strategy, but the NRC retained the right

to terminate the contract if doing so was “in the best interest

of the government.” The contract defined organizational

conflicts of interest by reference to NRC regulations, which in

turn defined an organizational conflict of interest as follows:

a relationship . . . whereby a contractor or

prospective contractor has present or planned

interests related to the work to be performed under

an NRC contract which: (1) May diminish its

capacity to give impartial, technically sound,

objective assistance and advice or may otherwise

result in a biased work product, or (2) may result in

its being given an unfair advantage.

41 C.F.R § 20-1.5402(a) (1979).

5

In addition, the contract required SAIC to make several

“representations” and “certifications.” SAIC certified that its

contract award resulted in none of the “situations or

relationships” outlined in 41 C.F.R. § 20-1.5403(b) (1979).

That regulation, now codified at 48 C.F.R. § 2009.570-3(b),

lists the following situations or relationships that give rise to

conflicts:

(i) Where the . . . contractor provides advice and

recommendation to the NRC in a technical area in

which it is also providing consulting assistance in the

same area to any organization regulated by the NRC.

(ii) Where the . . . contractor provides advice to the

NRC on the same or similar matter on which it is

also providing assistance to any organization

regulated by the NRC.

....

(iv) Where the award of a contract would otherwise

result in placing the . . . contractor in a conflicting

role in which its judgment may be biased in relation

to its work for the NRC, or would result in an unfair

competitive advantage . . . .

The contract also provided that “[t]he nondisclosure or

misrepresentation of any relevant interest may . . . result in the

disqualification of the [contractor] for awards[,] or if

nondisclosure or misrepresentation is discovered after the

award, the resulting contract may be terminated.”

During the term of the 1992 contract, SAIC and the NRC

agreed to several modifications, and each time the company

certified that the modification involved none of the above

situations or relationships. SAIC repeated this certification in

6

the 1999 contract. Critical to the issue before us, the pre-

printed payment vouchers that the NRC required SAIC to

submit for work performed under the contracts contained no

express certifications, nor did anything in either contract

expressly condition payment on such a certification.

At an open NRC meeting in October 1999, a member of

the public charged that SAIC was involved in projects with

for-profit companies that potentially created prohibited

organizational conflicts of interest with respect to SAIC’s

NRC work. Responding to this allegation, the NRC asked

SAIC to provide information about the company’s other work

in the area of nuclear recycling. Based on SAIC’s disclosure

of its existing contracts with two companies—British Nuclear

Fuels, Ltd. (“British Nuclear”) and the Bechtel Jacobs

Company (“Bechtel Jacobs”)—the NRC determined that

SAIC had, without proper disclosure, placed itself in

potentially conflicting roles. The NRC informed SAIC of this

determination and ordered the company to stop working on

the 1999 contract. The parties subsequently entered into a no-

cost settlement terminating that contract.

The United States brought suit against SAIC, raising two

claims under the False Claims Act. First, the government

charged SAIC with knowingly submitting false or fraudulent

claims for payment in violation of 31 U.S.C. § 3729(a)(1) by

continuing to submit payment invoices after the conflicting

relationships arose. Second, the government alleged that

SAIC knowingly made false statements to get false or

fraudulent claims paid or approved in violation of 31 U.S.C.

§ 3729(a)(2) when the company certified to the NRC not only

that it had no organizational conflict of interest relationships,

but also that it would immediately inform the NRC if such

relationships developed. The government also brought a

claim for breach of the 1992 contract.

7

The government’s FCA causes of action focused on

SAIC’s business relationships with contractors participating

in a project to decommission and decontaminate buildings at a

Department of Energy (DOE) site in Oak Ridge, Tennessee.

DOE contracted with British Nuclear in 1997 to work on this

project, and British Nuclear then engaged SAIC to serve as a

subcontractor. Although work performed at DOE’s facilities

was subject only to DOE oversight, the government argued

that SAIC’s relationship with British Nuclear created a

potential conflict because the project involved the recycling

and release of radioactive materials that would become

subject to NRC regulation after leaving the DOE facility and

entering into interstate commerce. In addition, one of British

Nuclear’s other subcontractors on the project, its wholly-

owned subsidiary Manufacturing Science Corporation (MSC),

was licensed under NRC standards by the state of Tennessee.

In 1999, SAIC also performed consulting work for Bechtel

Jacobs, another contractor DOE employed on the Oak Ridge

project. SAIC helped Bechtel Jacobs with a dose assessment

and performed a cost-benefit analysis regarding the recycling

of radioactively contaminated materials from the site. The

government contended that SAIC’s work for Bechtel Jacobs

closely overlapped with the company’s work for the NRC, as

illustrated most starkly by the allegation that a company

employee copied material from a report prepared for the NRC

and pasted it into one for Bechtel Jacobs.

Beyond SAIC’s work relating to DOE’s Oak Ridge

decommissioning and decontamination project, the

government alleged that SAIC possessed other undisclosed

potential conflicts. For example, the government pointed out

that SAIC Vice President Gerald Motl participated in the

company’s work for the NRC while at the same time serving

as an officer and board member of the Association of

Radioactive Metal Recyclers (ARMR), a trade association

8

that advocated for national regulatory standards governing the

reuse and recycling of radioactive materials.

SAIC moved for summary judgment on the government’s

FCA and breach of contract claims, which the district court

denied. In doing so, the district court rejected SAIC’s

argument that the government failed to present evidence that

the company’s submissions for payment qualified as false

claims under the FCA. See United States v. Science

Applications Int’l Corp. (“Science Applications I”), 555 F.

Supp. 2d 40, 49–51 (D.D.C. 2008). Although the district

court recognized that SAIC’s payment invoices themselves

made no factually false statements about the services

performed and contained no false express certifications of

compliance with legal requirements, it nonetheless concluded

that the government could proceed on a theory of “implied

false certification” because it had presented unrebutted

evidence that SAIC’s allegedly false certifications of

compliance with no-conflict requirements “constituted

‘information critical to the [government’s] decision to

pay[.]’ ” Id. at 50 (quoting United States v. TDC Mgmt. Corp.

(“TDC II”), 288 F.3d 421, 426 (D.C. Cir. 2002) (alterations in

original)). In so holding—and setting the stage for the central

issue before us—the court rejected SAIC’s argument that the

implied certification theory requires the government to show

that compliance with the contractual conflict of interest

provisions is an express condition precedent to the receipt of

payment. See Science Applications I, 555 F. Supp. 2d at 49–

51. The district court also found that the government had

offered sufficient evidence to create triable issues as to

whether SAIC submitted false claims and made false

statements in support of those claims “knowingly,” as well as

whether the government had suffered actual damages as a

result of the alleged false claims and statements. See id. at

54–56.

9

Following a four-week trial, the jury found SAIC liable

under FCA sections 3729(a)(1) and 3729(a)(2) and for breach

of its 1992 NRC contract. Specifically, the jury determined

that SAIC had “knowingly presented or caused to be

presented sixty false or fraudulent claims for payment or

approval by the government” and had “knowingly made,

used, or caused to be made or used seventeen false records or

statements to get a false or fraudulent claim paid or approved

by the United States government.” See United States v.

Science Applications Int’l Corp. (“Science Applications II”),

653 F. Supp. 2d 87, 94 (D.D.C. 2009). Based on the district

court’s instruction, the jury concluded that the government

suffered FCA damages of $1,973,839.61—the full amount of

payments made by the government for the claims the jury

concluded were knowingly false. Pursuant to FCA section

3729(a), the district court then trebled this amount and added

an additional $577,500 in civil penalties. As to the

government’s breach of contract claim, the jury awarded only

$78. The district court entered final judgment in the amount

of $6,499,096.83.

SAIC moved for judgment as a matter of law under

Federal Rule of Civil Procedure 50(b) and in the alternative

sought a new trial under Rule 59(a). See id. at 92. As is

relevant to this appeal, SAIC argued (1) that the government

failed to prove that the company submitted false claims under

an implied certification theory because the record contained

no evidence that payment under the contract was expressly

conditioned on SAIC’s compliance with organizational

conflict of interest obligations, (2) that the evidence precluded

the jury from finding, as it did, that SAIC acted “knowingly”

under the FCA when it submitted false claims and statements

because SAIC’s belief that it had no conflicts as defined by

the applicable contractual provisions and regulations was

reasonable, (3) that various jury instructions were erroneous

10

and prejudicial, including an instruction that the jury could

find that SAIC possessed knowledge based on the “collective

knowledge” of its employees, and (4) that the government

failed to prove that it suffered any damages from SAIC’s false

claims, and in the alternative that the district court’s damages

instruction was erroneous and prejudicial. See id. at 95–99,

102–04, 107–09.

The district court rejected each argument. With respect

to implied certification, the court reiterated its earlier holding

that this theory of liability has no express condition precedent

requirement. Id. at 102–03. The court therefore concluded

that its instruction to the jury that “[a] claim for payment or a

statement made in order to get payment is false if there is a

withholding of information that is critical to the government’s

decision to pay” accurately stated the law of this circuit. Id. at

103. The court also found sufficient record evidence to

support the jury’s determination that SAIC’s false

representations that it had no conflicts of interest were critical

to the government’s decision to pay. In support, it pointed to

testimony by NRC and SAIC employees describing the

importance of the company’s organizational conflict of

interest obligations to the overall contract and indicating that

the NRC would have withheld payments under the contract

had it been aware of SAIC’s undisclosed potential conflicts of

interest. Id. As to scienter, the district court concluded that

the record contained sufficient evidence to have allowed the

jury to infer that SAIC’s false claims and statements were

made knowingly, either on the basis of actual knowledge of

undisclosed organizational conflicts or as a result of reckless

disregard for or deliberate ignorance of the truth. Id. at 96–

99. In particular, the court found that “SAIC knew that it had

relationships with entities . . . that were subject to the

regulations of the NRC, regardless of whether these entities

were doing other work for DOE excluded from the NRC’s

11

regulatory authority.” Id. at 97. The court also found

reasonable the government’s use of a “collective knowledge”

theory to help establish scienter, explaining that its instruction

was appropriate “because the jury could have properly

inferred SAIC’s fraudulent intent from its collective

knowledge.” Id. at 98–99. Finally, the district court upheld

the jury’s FCA damages award and rejected SAIC’s challenge

to the instruction. Under the government’s theory of

proximate causation, the court explained, had the NRC known

about SAIC’s organizational conflicts, it would have made no

payments whatsoever for the consulting advice and technical

assistance it received. Accordingly, the court concluded, the

actual value of SAIC’s work was “irrelevant.” See id. at 108–

09.

SAIC now appeals, seeking judgment as a matter of law

with respect to liability on all causes of action and with

respect to FCA damages. Alternatively, it urges us to vacate

the district court’s judgment and remand for a new trial on all

claims. In support, SAIC reasserts each of the arguments

discussed above and objects to various other jury instructions,

as well as to the constitutionality of the damages award under

the Eighth Amendment’s Excessive Fines Clause.

II.

As the False Claims Act existed at the time of the

conduct giving rise to this litigation, the statute imposed

liability on any person who

(1) knowingly presents, or causes to be presented, to

an officer or employee of the United States

Government or a member of the Armed Forces of the

United States a false or fraudulent claim for payment

or approval; [or] (2) knowingly makes, uses, or

causes to be made or used, a false record or

12

statement to get a false or fraudulent claim paid or

approved by the Government.

31 U.S.C. § 3729(a)(1)–(2) (2008). The FCA defines claim

broadly to include “any request or demand, whether under a

contract or otherwise, for money or property which is made to

a contractor, grantee, or other recipient if the United States

Government provides any portion of the money or property

which is requested or demanded.” Id. § 3729(c). The key

statutory terms “knowing” and “knowingly” are in turn

defined to include a defendant’s “actual knowledge,”

“deliberate ignorance,” or “reckless disregard” of the truth or

falsity of information in the defendant’s claim for payment or

statements made to get such claims paid. Id. § 3729(b).

Following trial in this case, Congress amended the FCA

by enacting the Fraud Enforcement and Recovery Act of 2009

(“FERA”), Pub. L. No. 111-21, 123 Stat. 1617. In response to

SAIC’s post-trial motions in the district court, the government

argued that the amended version of the statute applies

retroactively. Disagreeing, the district court concluded that

“FERA has no impact on the present action.” See Science

Applications II, 653 F. Supp. 2d at 107. On appeal, although

the government still maintains that the district court erred by

failing to give retroactive effect to the 2009 amendments, it

nonetheless assures us that the issue “has no bearing on the

outcome of this case.” Appellee’s Br. 53. Taking the

government at its word, we shall assume the correctness of

the district court’s decision on this point and henceforth refer

only to the FCA’s pre-2009 language.

“False claims” under the FCA take a variety of forms. In

the paradigmatic case, a claim is false because it “involves an

incorrect description of goods or services provided or a

request for reimbursement for goods or services never

13

provided.” Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001).

Here, the government’s case relies on the so-called

“certification theory” of liability, or alternatively “legally

false certification.” See id. at 696–97. Under this theory, a

claim for payment is false when it rests on a false

representation of compliance with an applicable federal

statute, federal regulation, or contractual term. See id. at 696.

False certifications can be either express or implied. Courts

infer implied certifications from silence “where certification

was a prerequisite to the government action sought.” United

States ex. rel. Siewick v. Jamieson Sci. & Eng’g, Inc., 214

F.3d 1372, 1376 (D.C. Cir. 2000).

This circuit has endorsed the implied certification theory,

albeit implicitly. See id.; United States. v. TDC Mgmt. Corp.

(“TDC I”), 24 F.3d 292, 296–97 (D.C. Cir. 1994) (allowing

the government to bring an FCA claim based on information

omitted from a company’s progress reports). Although SAIC

calls the implied certification theory a “novel, judicially

crafted expansion of the FCA,” Appellant’s Br. 23, its

argument actually assumes the theory’s validity and instead

seeks to limit its scope. Specifically, SAIC contends that

liability may attach under the implied certification theory

“only where a statute, regulation, or contractual provision

makes compliance with a requirement an express condition

precedent to payment.” Id. By contrast, the government

argues—and the district court agreed—that a government

contractor runs afoul of the FCA by submitting claims for

payment while knowing that it violated contractual provisions

that are material to the government’s decision to pay. See

Science Applications I, 555 F. Supp. 2d at 49–50.

According to the government, we can resolve this case in

its favor without deciding whose theory of implied

14

certification is correct. Its two arguments in support of that

proposition, however, are unconvincing.

The government first points to the jury’s finding that

SAIC made seventeen express false statements of compliance

with its contractual conflict of interest obligations, contending

that “[t]hese express . . . representations are plainly sufficient

in and of themselves to give rise to [FCA] liability.”

Appellee’s Br. 23. This argument rests on a

misunderstanding of the FCA’s structure. Knowingly false

statements are indeed separately actionable under FCA

section 3729(a)(2), but only if the contractor used the

statements “for the purpose of getting ‘a false or fraudulent

claim paid or approved by the Government.’ ” Allison Engine

Co. v. United States ex rel. Sanders, 553 U.S. 662, 671 (2008)

(quoting 31 U.S.C. § 3729(a)(2)); see also United States v.

Southland Mgmt. Corp., 326 F.3d 669, 675 (5th Cir. 2003) (en

banc) (“Although § 3729(a)(2) prohibits the submission of a

false record or statement, it does so only when the submission

of the record or statement was done in an attempt to get a

false claim paid. There is no liability under [the FCA] for a

false statement unless it is used to get a false claim paid.”).

Therefore, as the district court recognized, because the actual

claims for payment submitted by SAIC were accurate reports

of services rendered that made no reference to whether the

company had complied with organizational conflict of interest

requirements, and because the government has never argued

that SAIC’s separate express contractual certifications were

themselves “request[s] or demand[s] for money” so as to fall

within the statute’s definition of “claims,” see 31

U.S.C. § 3729(c), the government must prove that SAIC’s

claims for payment were impliedly false for either FCA cause

of action to succeed. See Science Applications I, 555 F. Supp.

2d at 49–50 (“Neither party contends that invoices submitted

for payment by SAIC were either factually false or that they

15

contained express false certifications; the issue is whether the

government can show that SAIC made implied false

certifications in submitting its invoices to the NRC.”).

Second, the government believes that even if SAIC’s

narrower version of implied certification is correct, the

government’s evidence satisfies that standard because federal

law makes compliance with conflict of interest obligations an

express condition precedent to NRC contract awards and

hence to the receipt of payments under those contracts. The

NRC’s legal responsibility to evaluate and avoid (or at least

mitigate) potential conflicts of interest before entering into

contracts certainly helps demonstrate the importance of

honest and complete conflict of interest disclosures to the

agency. But the statute the government refers to, 42 U.S.C.

§ 2210a(a)–(b), imposes obligations only on the NRC and

nowhere requires that, in order to be eligible for payment, an

NRC contractor must inform the agency if it has developed

any potential conflicts of interest.

To resolve this case, we must therefore decide whether an

FCA plaintiff may state a cause of action against a federal

contractor who fails to disclose the violation of a contractual

condition that is material to the government’s decision to pay

where, as here, that condition is not an express prerequisite to

payment. Both parties argue that this question is controlled

by circuit precedent. Both are wrong.

SAIC insists that we adopted an express condition

precedent requirement in Siewick, where we held that “false

certification of compliance with a statute or regulation cannot

serve as the basis for [an FCA action] unless payment is

conditioned on that certification.” 214 F.3d at 1376. But

SAIC’s interpretation divorces Siewick from its facts. In that

case, a qui tam relator—i.e., a private FCA plaintiff—alleged

16

that a government contractor submitted a false claim by

seeking payment while one of its officers was in violation of a

criminal statute, 18 U.S.C. § 207, that prohibits “revolving

door” abuses by former government employees. The contract

in Siewick made no mention of section 207, so in sharp

contrast to the facts of this case, compliance with the legal

requirement the defendant supposedly violated was never

recognized as a contractual obligation. See Siewick, 214 F.3d

at 1376 (“Siewick points to nothing suggesting that [the

contractor] was required to certify compliance with [section]

207 as a condition of its contract.”). As a result, we had no

need in Siewick to resolve the question we face here, which

involves a government contract that did require the contractor

not only to warrant that it had no organizational conflicts of

interest as defined by applicable regulation, but also to

immediately disclose if such conflicts arose during the course

of its performance under the contract.

For its part, the government thinks that we endorsed its

theory of implied certification in TDC II. There, we found

“culpable” a company that failed to disclose in progress

reports to the government that it violated the terms of a

program by taking a financial position rather than serving as

an impartial ombudsman between participating companies

and private investors. See 288 F.3d at 422, 426. To be sure,

as the government points out, we favorably quoted the

proposition that “ ‘[t]he withholding of . . . information . . .

critical to the decision to pay [] is the essence of a false

claim.’ ” Id. at 426 (quoting Ab-Tech Constr., Inc. v. United

States, 31 Fed. Cl. 429, 434 (1994)). We said this, however,

only to explain our refusal to review an error the defendant

failed to raise in the district court. In determining that no

“ ‘plain miscarriage of justice’ ” would flow from our

enforcing the defendant’s waiver, id. at 425 (quoting Hormel

v. Helvering, 312 U.S. 552, 558 (1941)), we had no need to

17

determine the proper scope of the implied certification theory.

Indeed, neither party in TDC II even briefed the question of

whether the implied certification theory requires the

identification of an express condition precedent to payment

before liability can attach. In other words, nothing in TDC II

resolves the issue before us.

Thus untethered by precedent, we must determine the

proper scope of the implied certification theory. According to

SAIC, a claim can be false under the implied certification

theory only if the government contractor violates legal

requirements that are expressly designated as preconditions to

payment. Of course, nothing in the statute’s language

specifically requires such a rule, and we fear that adopting

one would foreclose FCA liability in situations that Congress

intended to fall within the Act’s scope. Cf. S. Rep. No. 99-

345, at 9 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5274

(stating the position of the Senate Judiciary Committee that

claims for payment for “goods or services . . . provided in

violation of contract terms” constitute false claims under the

Act). For example, under SAIC’s theory, no FCA liability

would attach where a government contractor (1) knows that it

violated a contractual requirement, (2) recognizes that

compliance with that requirement is material to the

government’s decision to pay (even though the contract

nowhere formally identifies the condition as a payment

prerequisite), and (3) submits claims for payment that omit

any mention of the requirement while knowing that were the

violation disclosed, no payment would be forthcoming.

Under this scenario, the contractor would escape FCA

liability because the absence of an express condition

precedent to payment would prevent the fact-finder from

judging the company’s claim to be false despite the

contractor’s knowledge that its ability to receive payments

from the government depended on withholding information

18

about its non-compliance with a key contractual provision.

We decline to create such a counterintuitive gap in the FCA

by imposing a legal requirement found nowhere in the

statute’s language.

Instead, we hold that to establish the existence of a “false

or fraudulent” claim on the basis of implied certification of a

contractual condition, the FCA plaintiff—here the

government—must show that the contractor withheld

information about its noncompliance with material contractual

requirements. The existence of express contractual language

specifically linking compliance to eligibility for payment may

well constitute dispositive evidence of materiality, but it is

not, as SAIC argues, a necessary condition. The plaintiff may

establish materiality in other ways, such as through testimony

demonstrating that both parties to the contract understood that

payment was conditional on compliance with the requirement

at issue.

The logic of our conclusion is perhaps best illustrated by

way of an example freed from the complexities of this case.

Consider a company that contracts with the government to

supply gasoline with an octane rating of ninety-one or higher.

The contract provides that the government will pay the

contractor on a monthly basis but nowhere states that

supplying gasoline of the specified octane is a precondition of

payment. Notwithstanding the contract’s ninety-one octane

requirement, the company knowingly supplies gasoline that

has an octane rating of only eighty-seven and fails to disclose

this discrepancy to the government. The company then

submits pre-printed monthly invoice forms supplied by the

government—forms that ask the contractor to specify the

amount of gasoline supplied during the month but nowhere

require it to certify that the gasoline is at least ninety-one

octane. So long as the government can show that supplying

19

gasoline at the specified octane level was a material

requirement of the contract, no one would doubt that the

monthly invoice qualifies as a false claim under the FCA

despite the fact that neither the contract nor the invoice

expressly stated that monthly payments were conditioned on

complying with the required octane level.

Stripped of its intricacies, the government’s case against

SAIC is no different. In our hypothetical, the government

contracted to purchase gasoline of a certain octane, and here

the government contracted to buy conflict-free advice and

technical assistance. Just as the claims for payment for

nonconforming gasoline were false, here the claims for

nonconforming counseling and technical assistance were false

so long as the government can establish that conflict-free

services were a material condition of the contract.

Although the proper scope of the implied certification

theory is somewhat unsettled in the circuits, the Tenth Circuit

employs the same materiality approach that we now adopt.

See United States ex rel. Lemmon v. Envirocare of Utah, Inc.,

614 F.3d 1163, 1169 (10th Cir. 2010) (“[F]alse certification—

regardless of whether it is implied or express—is actionable

under the FCA only if it leads the government to make a

payment which, absent the falsity, it may not have made.”);

id. at 1170 (concluding that the qui tam plaintiff successfully

stated an FCA claim by alleging regulatory violations that

“also constituted material breaches of . . . contractual

obligations”); Shaw v. AAA Eng’g & Drafting, Inc., 213 F.3d

519, 531–32 (10th Cir. 2000) (holding that a company’s

monthly invoices for photography services were false because

the company implicitly certified that it met contractual

obligations to recover and dispose of trace silver according to

Environmental Protection Agency guidelines). The Ninth

Circuit has likewise held that “[i]mplied false certification

20

occurs when an entity has previously undertaken to expressly

comply with a law, rule, or regulation, and that obligation is

implicated by submitting a claim for payment even though a

certification of compliance is not required in the process of

submitting the claim.” Ebeid ex rel. United States v.

Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010).

By contrast, the Second Circuit has recognized an express

condition precedent requirement for implied certification—

although it did so in a substantially different situation that, as

in Siewick, involved the violation of no contractual

requirement. See Mikes, 274 F.3d at 700. Indeed, the Second

Circuit largely confined its reasoning to claims by medical

providers under Medicare guidelines, as the court worried that

broad application of the FCA in that setting would operate as

an inappropriately “blunt instrument to enforce compliance

with all medical regulations.” Id. at 699–700; see also United

States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166,

1177 (9th Cir. 2006) (recognizing that “the Mikes court was

dealing with the Medicare context, to which the court

specifically confined its reasoning”). Given the context-

specific setting of the Second Circuit’s decision, its concerns

have no applicability to the case before us, which involves

SAIC’s alleged violation of regulatory requirements actually

incorporated into its contract and which implicates none of

the federalism concerns involved in Mikes. True, the Second

Circuit has subsequently applied the Mikes standard outside

the Medicare context, see United States ex rel. Kirk v.

Schindler Elevator Corp., 601 F.3d 94, 115 (2d Cir. 2010),

cert. granted, 2010 WL 3116440 (U.S. Sept. 28, 2010) (No.

10-188), but we are unaware of any decision in that circuit

rejecting an FCA claim where, as the government alleges

here, the defendant sought payment after knowingly violating

a material requirement of its contract.

21

Even though we have rejected SAIC’s effort to cabin the

implied certification theory, we fully understand the risks

created by an excessively broad interpretation of the FCA. As

SAIC compellingly points out, without clear limits and

careful application, the implied certification theory is prone to

abuse by the government and qui tam relators who, seeking to

take advantage of the FCA’s generous remedial scheme, may

attempt to turn the violation of minor contractual provisions

into an FCA action. In our view, however, instead of

adopting a circumscribed view of what it means for a claim to

be false or fraudulent, this very real concern can be

effectively addressed through strict enforcement of the Act’s

materiality and scienter requirements. In the following pages,

we discuss each of these requirements and explain why record

evidence of materiality and scienter leads us to affirm the

district court’s denial of SAIC’s motion for judgment as a

matter of law on the government’s FCA claims, as well as on

the government’s breach of contract claim.

Materiality

To establish FCA liability under an implied certification

theory, the plaintiff must prove by a preponderance of the

evidence that compliance with the legal requirement in

question is material to the government’s decision to pay. By

enforcing this requirement rigorously, courts will ensure that

government contractors will not face “onerous and unforeseen

FCA liability” as the result of noncompliance with any of

“potentially hundreds of legal requirements” established by

contract. Appellant’s Reply Br. 12. Payment requests by a

contractor who has violated minor contractual provisions that

are merely ancillary to the parties’ bargain are neither false

nor fraudulent.

In this case, however, record evidence could have

allowed the jury to conclude that the contract’s conflict of

22

interest provisions were far from minor. As the district court

explained, “[n]umerous witness[es] from both the NRC and

SAIC testified that the [organizational conflict of interest]

obligations in SAIC’s contracts with the NRC were important

to the overall purpose of the contract.” Science Applications

II, 653 F. Supp. 2d at 103. NRC contracting officers and

specialists also testified that had they been aware of SAIC’s

apparent or actual conflicts, such as its relationships with

British Nuclear and Bechtel Jacobs, they would not have

awarded the two contracts, nor would they have made

payments under those contracts. Id.

Scienter

Strict enforcement of the FCA’s scienter requirement will

also help to ensure that ordinary breaches of contract are not

converted into FCA liability. Cf. Shaw, 213 F.3d at 532–33

(endorsing the implied certification theory and explaining that

the Act’s scienter requirement limits liability to cases where

the contractor knew its certification of compliance was false).

For example, FCA section 3729(a)(1) imposes liability only

when a person “knowingly presents, or causes to be presented

. . . a false or fraudulent claim.” Establishing knowledge

under this provision on the basis of implied certification

requires the plaintiff to prove that the defendant knows (1)

that it violated a contractual obligation, and (2) that its

compliance with that obligation was material to the

government’s decision to pay. If the plaintiff proves both,

and does so based on the proper standard for knowledge—

which as we explain below excludes “collective

knowledge,” see infra Part III—then it will have established

that the defendant sought government payment through

deceit, surely the very mischief the FCA was designed to

prevent. Cf. Cook County v. United States ex rel. Chandler,

538 U.S. 119, 129 (2003) (explaining that in adopting the

FCA, “Congress wrote expansively . . . ‘to reach all types of

23

fraud, without qualification, that might result in financial loss

to the Government’ ” (quoting United States v. Neifert-White

Co., 390 U.S. 228, 232 (1968))).

In this case, having challenged the materiality theory for

implied certification, SAIC never addresses whether the

record is sufficient to support a jury verdict that it knew

adherence to contractual conflict of interest requirements was

critical to the government’s decision to pay. Instead, SAIC

vigorously argues that the evidence was insufficient to

support the jury’s conclusion that whatever certifications of

compliance it did make were false. According to SAIC, it

reasonably believed that its work with DOE contractors posed

no potential conflicts and led to none of the “situations or

relationships” described in NRC regulations. See 41 C.F.R.

§ 20-1.5403(b) (1979). In support, SAIC points to the

existence of a long-recognized “regulatory divide,”

Appellant’s Br. 6–7, between the NRC and DOE under which

prime-DOE contractors are exempt from NRC licensing

requirements for work performed at DOE sites owned by the

government, see 42 U.S.C. § 2140(a); 10 C.F.R. §§ 30.12,

40.11, 70.11. SAIC also highlights statements made at public

meetings by NRC personnel confirming that the NRC lacks

licensing authority over work performed at DOE facilities.

SAIC dismisses the probative value of other conflicts alleged

by the government, such as Vice President Motl’s

participation in ARMR, calling it “manifestly absurd to assert

that SAIC intentionally or recklessly made false certifications

of conflict-of-interest compliance” on the basis of a single

employee’s membership in a trade association. Appellant’s

Br. 41.

To be sure, record evidence does support SAIC’s

contention that any false certifications the company made

resulted from reasonable mistakes. The record, however, also

24

supports a contrary view. For example, trial testimony could

support a jury conclusion that SAIC employees knew that the

company, in violation of NRC conflict of interest regulations

to which it certified compliance, was “providing consulting

assistance” to organizations “regulated by the NRC” on issues

relating to the recycling and clearance of radioactively

contaminated materials that were the subject of SAIC’s work

for the NRC. See 41 C.F.R. § 20-1.5403(b)(1)(i)–(ii) (1979).

Specifically, several employees acknowledged at trial that

British Nuclear and MSC intended to sell materials recycled

from DOE’s Oak Ridge facility and that such contaminated

materials would be subject to NRC regulation once released

into general commerce. As the district court found, such

evidence “could tend to discredit SAIC’s argument that its

alleged false statements were the result of its belief that the

entities with which it had relationships were entities wholly

excluded from NRC regulation,” and could instead permit

“reasonable jury inferences that SAIC knew that it had

relationships with entities . . . that were subject to the

regulations of the NRC, regardless of whether these entities

were doing other work for the DOE excluded from the NRC’s

regulatory authority.” Science Applications II, 653 F. Supp.

2d at 96–97. Public statements by NRC officials on which

SAIC relies do nothing to undermine this inference. Those

officials stated that because the NRC regulated neither DOE

itself nor DOE facilities, none of NRC’s conflict of interest

policies applied to DOE. That fact, however, is entirely

undisputed. Moreover, at one of the public meetings SAIC

references, an NRC official acknowledged that although the

NRC had no regulatory authority over DOE’s decision to

release recycled materials from its facilities, it would acquire

jurisdiction over the materials were they to enter NRC-

licensed facilities.

25

The jury also could have concluded that SAIC employees

knew that either the company or its employees had other

relationships that placed SAIC in a conflicting role that might

have biased its judgment. See 41 C.F.R. § 20-

1.5403(b)(1)(iv) (1979). For example, some employees knew

of the significant overlap between, on the one hand, SAIC’s

work for Bechtel Jacobs, which involved dose assessments for

contaminated scrap metal at DOE’s Oak Ridge buildings and

cost-benefit analysis of the recycling of those materials, and,

on the other, SAIC’s work for the NRC. See Science

Applications II, 653 F. Supp. 2d at 101 (summarizing

testimony by several SAIC employees). And contrary to

SAIC’s argument, the jury could have given some weight to

the participation of the company’s Vice President in ARMR.

Although SAIC seeks to minimize the relevance of this

membership, it overlooks the fact that the Vice President

functioned as more than just a member of the organization;

instead, he served as an officer and board member who

“played an active part in ARMR’s advocating for a standard

governing release or recycle of radioactive material.” Id.

Given that role, the jury was entitled to conclude that the Vice

President or others aware of his membership knew or

recklessly failed to know that his simultaneous work for the

NRC on the same subject matter created a potential conflict of

interest that the company was obligated to disclose.

Reviewing the record in its entirety and considering, as

we must, all evidence in the light most favorable to the

government, see Smith v. Wash. Sheraton Corp., 135 F.3d

779, 782 (D.C. Cir. 1998), we conclude that record evidence

is sufficient to have allowed the jury to reasonably believe

that SAIC knowingly submitted false claims for payment and

made false statements of compliance with the organizational

conflict of interest requirements set forth in its NRC contracts.

26

Breach of Contract

For the same reasons, SAIC’s argument for judgment as a

matter of law as to the government’s breach-of-contract claim

necessarily fails. The record was sufficient to permit the jury

to find that SAIC breached its obligations both to avoid

potential conflicts and to disclose any that arose during the

course of performance.

III.

We next consider SAIC’s alternative contention that we

must vacate and remand for a new trial because the district

court’s “collective knowledge” instruction was both erroneous

and prejudicial. Over SAIC’s objection, the district court

instructed the jury that corporations are “liable for the

collective knowledge of all employees and agents within the

corporation so long as those individuals obtained their

knowledge acting on behalf of the corporation.” Trial Tr. at

17 (July 28, 2008). The court continued:

Therefore, if a corporation has many employees or

agents, you must consider the knowledge possessed

by those employees and agents as if it was added

together and combined into one collective pool of

information. If that collective pool of information

here gives a reasonably complete picture of . . . false

or fraudulent claims or false statements, you may

find that SAIC itself possessed a reasonably

complete picture of the false or fraudulent claims or

false statements and acted knowingly.

Id. The district court then juxtaposed the possibility of

inferring corporate knowledge based on “collective

knowledge” with an alternative, i.e., establishing corporate

scienter based on the state of mind of individual employees.

27

Specifically, it instructed the jury that it could find that SAIC

“acted knowingly” if it determined that

at least one individual employee of SAIC had actual

knowledge of an organizational conflict of interest

that contradicted SAIC’s statements and claims that

were made and presented to the NRC, or . . . that the

individual employee acted in deliberate ignorance or

in reckless disregard of such information. . . . This

individual need not have been an employee who

actually submitted certifications or claims to the

NRC.

Id.

SAIC and one of its amici argue that the “collective

knowledge” component of this instruction improperly allowed

the government to prove FCA liability without having to

demonstrate that any particular SAIC employee knew that the

company’s claims were false or that SAIC employees acted in

deliberate ignorance or reckless disregard of their truth or

falsity. Whether the district court’s instruction is consistent

with the FCA’s scienter requirement presents a question of

law that we review de novo. See United States v. Orenuga,

430 F.3d 1158, 1166 (D.C. Cir. 2005). Under the harmless

error rule, we will vacate a judgment only if an instructional

error “affected the substantial rights of the parties.” Williams

v. U.S. Elevator Corp., 920 F.2d 1019, 1022 (D.C. Cir. 1990)

(quotations and alterations omitted).

In non-FCA cases, we have expressed a good deal of

skepticism about corporate intent theories that rely on

aggregating the states of mind of multiple individuals. In

Saba v. Compagnie Nationale Air France, 78 F.3d 664 (D.C.

Cir. 1996), in which we held that the plaintiff had failed to

establish that the defendant engaged in the “willful

28

misconduct” necessary to impose liability under Article 22 of

the Warsaw Convention, we explained that though “negligent

acts of employees can be fairly imputed to the corporation[,]

[i]ndividual acts of negligence on the part of employees . . .

cannot . . . be combined to create a wrongful corporate

intent.” Id. at 670 n.6. More recently, in United States v.

Phillip Morris USA Inc., 566 F.3d 1095 (D.C. Cir. 2009), we

explained that “[l]ike . . . other courts, we are dubious of the

legal soundness of the ‘collective intent’ theory,” under

which, as we explained, a corporation’s specific intent to

defraud can be inferred if the company’s public statements

contradict the accumulated “collective knowledge” of the

corporation’s employees. Id. at 1122. In contrast to these two

non-FCA cases, Congress defined the FCA’s scienter element

to require “no proof of specific intent.” See 31 U.S.C.

§ 3729(b). We nonetheless believe that under the FCA,

“collective knowledge” provides an inappropriate basis for

proof of scienter because it effectively imposes liability,

complete with treble damages and substantial civil penalties,

for a type of loose constructive knowledge that is inconsistent

with the Act’s language, structure, and purpose.

Congress established the FCA’s scienter requirement

when it amended the Act in 1986 “to clarify” that even absent

evidence of specific intent to defraud, “defendants were

subject to liability . . . if they had ‘actual knowledge’ of the

falsity of their claims or acted with ‘deliberate ignorance’ or

‘reckless disregard’ of the truth or falsity of their claims.”

TDC I, 24 F.3d at 297–98 (quoting 31 U.S.C. § 3729(b)).

According to the Senate Committee Report to the 1986

amendments, Congress adopted this definition of

“knowingly” to capture the “ ‘ostrich-like’ conduct which can

occur in large corporations” where “corporate officers . . .

insulate themselves from knowledge of false claims submitted

by lower-level subordinates.” S. Rep. No. 99-345, at 6

29

(1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5272. That

said, Congress clearly had no intention to turn the FCA, a law

designed to punish and deter fraud, into a vehicle for either

“punish[ing] honest mistakes or incorrect claims submitted

through mere negligence” or imposing “a burdensome

obligation” on government contractors rather than a “limited

duty to inquire.” Id. at 6, 19. The resulting statutory

language demonstrates the care Congress took to balance

competing objectives. Although Congress defined

“knowingly” to include some forms of constructive

knowledge, its definition of that term imposes liability for

mistakenly false claims only when the defendant deliberately

avoided learning the truth or engaged in aggravated gross

negligence. See United States v. Krizek, 111 F.3d 934, 942

(D.C. Cir. 1997) (equating “reckless disregard” with

“aggravated gross negligence”); see also Wang v. FMC Corp.,

975 F.2d 1412, 1420 (9th Cir. 1992) (explaining that although

section 3729(b) of the FCA adopts a less exacting definition

of scienter than common law fraud, “innocent mistakes” and

“negligence” remain defenses under the Act).

Lacking such balance and precision, the “collective

knowledge” theory allows “a plaintiff to prove scienter by

piecing together scraps of ‘innocent’ knowledge held by

various corporate officials, even if those officials never had

contact with each other or knew what others were doing in

connection with a claim seeking government funds.” United

States ex rel. Harrison v. Westinghouse Savannah River Co.,

352 F.3d 908, 918 n.9 (4th Cir. 2003). In other words, even

absent proof that corporate officials acted with deliberate

ignorance or reckless disregard for the truth by submitting a

false claim as the result of, for instance, a communication

failure, the fact-finder could determine that the corporation

knowingly submitted a false claim. In this case, the district

court’s instruction goes even further, drawing no distinction

30

between the knowledge of corporate officers and that of

potentially thousands of ordinary employees, including the

knowledge of all employees in the “collective pool” of

information imputed to the corporation. The district court’s

instruction thus allowed the jury to find that SAIC knowingly

submitted false claims for payment even if the jury also

concluded (1) that no individual at SAIC was simultaneously

aware (or was recklessly unaware) of the company’s NRC

contract and its relationships with other companies involved

in the recycling of radioactive materials, and (2) that SAIC,

acting on the basis of the knowledge of its individual

employees, took reasonable steps to identify potential

conflicts.

We know of no circuit that has applied the “collective

knowledge” theory to the FCA. Indeed, in a closely

analogous case involving claims that were legally false

because of undisclosed conflicts of interest, the Fourth Circuit

recognized the theory’s troubling implications for FCA

liability. See Harrison, 352 F.3d at 918 n.9.

Defending the district court’s instruction, the government

relies primarily on United States v. Bank of New England, 821

F.2d 844 (1st Cir. 1987), in which the First Circuit held in a

non-FCA case that a collective knowledge instruction was

“entirely appropriate.” Id. at 856. That case is easily

distinguishable. First, as we explained in Saba, although the

First Circuit in Bank of New England allowed the jury to infer

corporate knowledge of facts through the accumulation of

individual knowledge, proof of “the proscribed intent” in that

case “depended on the wrongful intent of specific

employees.” Saba, 78 F.3d at 670 n.6. By contrast, the

“collective knowledge” instruction in this case gave the jury

an alternative basis for finding the requisite scienter. Second,

and more important, the First Circuit’s justification for the

31

“collective knowledge” theory has no applicability here.

There the court concluded that in the context of corporate

criminal liability, the trial court’s “collective knowledge”

instruction “was not only proper but necessary” to prevent

corporations from evading liability by “compartmentaliz[ing]

knowledge, subdividing the elements of specific duties and

operations into smaller components.” Bank of New England,

821 F.2d at 856. This “compartmentalization” problem,

however, is exactly what Congress had in mind when it

defined “knowing” and “knowingly” in the 1986 FCA

amendments. Under the FCA, if a plaintiff can prove that a

government contractor’s structure prevented it from learning

facts that made its claims for payment false, then the plaintiff

may establish that the company acted in deliberate ignorance

or reckless disregard of the truth of its claims. But if the

plaintiff in such a scenario fails to prove that the corporation

acted with deliberate ignorance or reckless disregard, then no

liability may attach under the FCA’s plain language.

Even though the government relied on the “collective

knowledge” theory throughout the proceedings in the district

court and repeatedly invoked it in closing arguments to the

jury, see Trial Tr. 48–50 (July 28, 2008), it nonetheless claims

that any instructional error was harmless because “the jury . . .

could find that SAIC had the requisite scienter here wholly

apart from [the] collective knowledge rubric.” Appellee’s Br.

42. We agree that the jury, relying entirely on evidence of

actual knowledge possessed by individual company

employees, could have found that SAIC knowingly submitted

false claims and made false statements. Alternatively, relying

on evidence regarding the actions of employees or SAIC’s

systems and structure, the jury could also have concluded that

the company acted recklessly or with deliberate ignorance of

the truth. For example, as noted above, record evidence

suggests that some employees who knew about SAIC’s

32

organizational conflict of interest obligations to the NRC were

also aware of the company’s business relationships with

British Nuclear, MSC, and Bechtel Jacobs. See supra at 20-

21. If the jury found that these individuals knew or recklessly

failed to know that SAIC, by having these conflicts and

failing to disclose them, violated a requirement under its NRC

contract that was material to the receipt of payment, then that

finding would be enough to establish SAIC’s scienter.

The harmless error standard, however, demands more

than a counterfactual assessment of what verdict the jury

might have reached without relying on the offending

instruction. In order to find that the error had no effect on

SAIC’s substantial rights, we would have to be able to say

“ ‘with fair assurance[] that the judgment was not

substantially swayed by the error.’ ” Williams, 920 F.2d at

1022–23 (quoting Kotteakos v. United States, 328 U.S. 750,

765 (1946) (internal alterations omitted)). This we cannot do,

for the “collective knowledge” instruction may have misled

the jury into believing that the standard for knowledge under

the FCA is lower for corporate defendants. That is, the jury

might have concluded that SAIC acted knowingly, as defined

in the challenged instruction, if the company could have or

should have realized it had potential conflicts based on the

“collective pool of information,” Trial Tr. at 17 (July 28,

2008), derived from all of its individual employees. As a

result, even though the jury might well have accepted SAIC’s

arguments that its compliance system was generally adequate

and that individual employees with knowledge of the

company’s conflicting business relationships honestly and

reasonably believed that these relationships created no

potential conflicts, it still might have concluded based on the

company’s “collective knowledge” that SAIC knew about the

conflicts (and by extension knew that its express

33

representations and implied certifications of compliance were

false).

To be sure, the district court did instruct the jury that for

the government to satisfy its burden of proof, “more than an

honest mistake or mere negligence [on the part of SAIC] must

be found.” Id. at 16. But by providing an alternate route to

proof of scienter, the “collective knowledge” instruction

undermined the clarity of this separate “no mere negligence

instruction” and allowed the jury to impose liability for what

is essentially negligence or mistake by another name. Given

the essential role that proof of scienter plays under the FCA,

and given our lack of confidence that the jury here based its

verdict on the proper legal standard, we decline to affirm on

the ground that the error was harmless. This is especially so

in view of the fact that we must be sure, as we explained

above, that liability in this implied certification suit attaches

only for fraud and not for ordinary breach of contract. See

supra at 22–23. We shall thus vacate the judgment for the

government with respect to its two FCA causes of action.

Given the foregoing, we have no need to address SAIC’s

challenges to other instructions with respect to its FCA

liability save for one that is also relevant to the breach of

contract verdict. SAIC argues that the district court erred by

failing to instruct the jury as to the meaning of the phrase

“regulated by the Nuclear Regulatory Commission”—key

language that appears in two of the conflict of interest

“situations or relationships” described in NRC regulations, 41

C.F.R. § 20-1.5403(b)(1)(i)–(ii) (1979). But even assuming

that the district court should have defined this phrase for the

jury, we see no prejudice to SAIC. As the district court

explained in its post-trial opinion, “the term ‘regulated by the

NRC’ does not carry a specialized definition under the NRC

regulations, and the jury was adequately informed of the

34

ordinary definition of ‘regulated by the NRC’ throughout

trial.” Science Applications II, 653 F. Supp. 2d at 110. That

ordinary definition, as SAIC’s former employee

acknowledged in his testimony, simply equated “regulated by

NRC” with “subject to the regulations of NRC.” Trial Tr. at

50 (July 3, 2008 (P.M.)) (testimony of Thomas Rodehau).

We thus have no reason to believe that the jury was left “free

to speculate about the meaning of this legal phrase.”

Appellant’s Br. 50. Accordingly, we shall affirm the

judgment as to the breach of contract claim.

IV.

This brings us finally to SAIC’s challenges to the jury’s

award of damages. Recall that the jury awarded the

government FCA damages of $1,973,839.61, which the

district court then trebled and combined with an additional

$577,500 in civil penalties. Given our decision to vacate the

judgment and remand as to the government’s FCA claims, we

have no need to reach the company’s argument that the award

violates the Eighth Amendment’s Excessive Fines Clause.

See Krizek, 111 F.3d at 940 (declining to reach the

defendant’s Excessive Fines Clause argument after vacating

on other grounds “in keeping with the principle that courts

should avoid unnecessarily deciding constitutional

questions”). But given our remand and in the interest of

judicial economy, we shall consider SAIC’s arguments (1)

that the government failed to prove that it suffered any actual

FCA damages and (2) that the district court’s damages

instruction was erroneous.

The FCA “imposes two types of liability.” United States

ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d

1321, 1326 (D.C. Cir. 2005). First, a defendant who submits

a false claim or makes a false statement to get a false claim

paid is liable for civil penalties regardless of whether the

35

government shows that the submission of that claim caused

the government damages. See id. Second, the defendant is

liable for “3 times the amount of damages which the

Government sustains because of the act of [the defendant].”

31 U.S.C. § 3729(a). SAIC’s two arguments focus only on

the award of damages.

SAIC contends that notwithstanding any technical

violations of the company’s conflict of interest obligations,

the government is entitled to no damages because it received

the full value of the services covered by the contract. This is

so, SAIC says, because it not only “delivered . . . all the work

product that it promised to deliver under its NRC contracts”

but also because reviewing NRC officials “uniformly praised”

that work product. Appellant’s Br. 54. As the government

points out, however, SAIC’s NRC contract obligated the

company to provide “advice and assistance that was both

technically sound and free from potential bias.” Appellee’s

Br. 46. As a result, a jury could rationally conclude that no

matter how technically proficient SAIC’s performance, the

value of that performance to the NRC was compromised by

the appearance of bias created by the company’s failure to

live up to its contractual conflict of interest obligations. The

jury could therefore award FCA damages for any loss in value

to the NRC attributable to SAIC’s failure to provide the

completely impartial conflict-free services required by the

NRC contracts. See TDC II, 288 F.3d at 428 (“[T]he evidence

allowed the district court to find that the value of the ‘best

efforts’ provided by TDC was vitiated by TDC’s fraudulent

concealment of its rent-seeking behavior.”).

We nonetheless agree with SAIC that the district court’s

damages instruction was flawed. The district court began by

describing the standard for causation, informing the jury that

“[t]he damages that the United States is entitled to recover

36

under the False Claims Act are the amount of money that the

government paid out by reason of the false claims over and

above what it would have paid out had SAIC not made the

false claims.” Trial Tr. at 21 (July 28, 2008). So far so good.

But the court went on to provide the following additional

guidance:

Your calculations of damages should be limited to

determining what the Nuclear Regulatory

Commission paid to [SAIC] over and above what the

NRC would have paid had it known of SAIC’s

organizational conflicts of interest. Your calculation

of damages should not attempt to account for the

value of services, if any, that SAIC conferred upon

the Nuclear Regulatory Commission.

Id. at 21–22. By requiring the jury to “limit[]” its calculation

of damages to the government’s payments, the instruction

compelled the jury to assess as damages the actual amount of

payments the government made to SAIC. This automatic

equation of the government’s payments with its damages is

mistaken.

In calculating FCA damages, the fact-finder seeks to set

an award that puts the government in the same position as it

would have been if the defendant’s claims had not been false.

See United States ex rel. Miller v. Bill Harbert Int’l Const.,

Inc., 608 F.3d 871, 904 (D.C. Cir. 2010); Harrision, 352 F.3d

at 922–23. In a case where the defendant agreed to provide

goods or services to the government, the proper measure of

damages is the difference between the value of the goods or

services actually provided by the contractor and the value the

goods or services would have had to the government had they

been delivered as promised. Proper application of this

benefit-of-the-bargain measure depends on the particular

37

circumstances of the case. Where a contractor’s fraud

consists of knowingly submitting nonconforming goods with

ascertainable market value, the Supreme Court has instructed

that “[t]he Government’s actual damages are equal to the

difference between the market value of the [product] it

received and retained and the market value that the [product]

would have had if [it] had been of the specified quality.”

United States v. Bornstein, 423 U.S. 303, 316 n.13 (1976).

But if the value that conforming goods or services would have

had is impossible to determine, then the fact-finder bases

damages on the amount the government actually paid minus

the value of the goods or services the government received or

used. See Joel M. Androphy, Federal False Claims Act &

Qui Tam Litigation § 11.03[2] (2009).

Under this benefit-of-the-bargain framework, the

government will sometimes be able to recover the full value

of payments made to the defendant, but only where the

government proves that it received no value from the product

delivered. See Harrison, 352 F.3d at 923 & n.17 (denying

plaintiff’s claim for disgorgement of the government’s total

contract payments but recognizing that “factual scenarios

could exist in which the contractor’s performance so lacks

any value as to make recovery of all monies paid by the

government an appropriate remedy”); TDC II, 288 F.3d at 428

(“Once TDC deviated from its contracted role as impartial

ombudsman . . . the district court . . . could properly find that

the Program no longer had any value to the government.”

(emphasis added)); United States ex rel. Schwedt v. Planning

Research Corp., 59 F.3d 196, 197–98, 200 (D.C. Cir. 1995)

(holding that payments for computer software system

components induced by false representations in a contractor’s

progress reports could constitute FCA damages where the

individual components were supposedly “worthless on their

own”). In some cases, such as where the defendant

38

fraudulently sought payments for participating in programs

designed to benefit third-parties rather than the government

itself, the government can easily establish that it received

nothing of value from the defendant and that all payments

made are therefore recoverable as damages. See TDC II, 288

F.3d at 428; see also United States ex rel. Longhi v. Lithium

Power Techs., Inc., 575 F.3d 458, 473 (5th Cir. 2009)

(calculating damages as the amount the government paid to

the defendants where “[t]he contracts entered . . . did not

produce a tangible benefit” to the government and were

instead part of a grant program designed to award money to

deserving small businesses); United States v. Rogan, 517 F.3d

449, 453 (7th Cir. 2008) (concluding that the defendant, who

submitted false claims for Medicare and Medicaid payments,

was required to repay the full amount of the claims as

damages because the defendant “did not furnish any medical

service to the United States,” and instead effectively sought a

government subsidy to which it was not entitled). Here,

however, the damages instruction essentially required the jury

to assume that SAIC’s service had no value even in the face

of possible evidence to the contrary. To establish damages,

the government must show not only that the defendant’s false

claims caused the government to make payments that it would

have otherwise withheld, but also that the performance the

government received was worth less than what it believed it

had purchased.

Because SAIC’s services under its NRC contract had no

ascertainable market price, the district court should instruct

the jury to calculate the government’s damages by

determining the amount of money the government paid due to

SAIC’s false claims over and above what the services the

company actually delivered were worth to the government.

Of course, the government remains free to argue that the

value of SAIC’s advice and assistance was completely

39

compromised by the existence of undisclosed conflicts,

making the full amount paid to SAIC the proper measure of

damages. SAIC, however, must also be allowed to offer

evidence to the contrary, such as evidence about the technical

quality of its work, the fact that the NRC continued to use

SAIC’s work product after the potential conflicts were

identified and the 1999 contract was terminated, and

testimony by NRC’s project manager that SAIC’s actual work

product “constituted the opposite of a conflict,” Trial Tr. at 9–

10 (July 3, 2008 (P.M.)) (testimony of Dr. Robert Meck), due

to its transparency and fairly conservative results.

We recognize the difficulty the jury will face in

calculating the value of services tainted by potential conflict,

although the district court’s breach of contract instruction

asked the jury to make just such a valuation. See Trial Tr. at

24 (July 28, 2008). The government, however, bears the

burden of proving damages, see 31 U.S.C. § 3731(d), and we

see no basis for adopting an irrebuttable presumption—

essentially what the government seeks—that treats services

involving expert advice and analysis affected by potential

organizational conflicts as categorically worthless.

V.

We affirm the district court’s denial of SAIC’s motion for

judgment as a matter of law, as well as its judgment as to both

liability and damages on the government’s claim for breach of

contract. With respect to the judgment as to liability and

damages under FCA sections 3729(a)(1) and 3729(a)(2), we

vacate and remand for further proceedings consistent with this

opinion.

So ordered.