# Petition for Writ of Certiorari — Boeing Co. v. United States Ex Rel. Roby > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1345%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2003 - **Citation:** 539 U.S. 969 ## Text Supreme Court, U8, ) FIL@® 0214 11 wR 21208 No. 02- —— IN THE Supreme Court of the GAnited States THE BOEING COMPANY, Petiticner, V. UNITED STATES OF AMERICA EX REL. BRETT ROBY, Respondent. Petition for a Writ of Certiorari to the United States Court of Appeals for the Sixth Circuit PETITION FOR CERTIORARI CARL S. RAUH CARTER G. PHILLIPS* AMY SABRIN P. DAVID RICHARDSON SKADDEN, ARPS, SLATE, STEPHEN B. KINNAIRD MEAGHER & FLOM LLP JENNIFER M. COLLINS 1440 New York Avenue, NE SIDLEY AUSTIN BROWN & Washington, D.C. 20005 WOOD LLP - (202) 371-7000 1501 K Street, N.W. Washington, D.C. 20005 JOHN W. WALBRAN (202) 736-8000 THE BOEING COMPANY P.O. Box 516 PAUL J. EHLENBACH MC § 100-3340 THE BOEING COMPANY Saint Louis, MO 63166 100 N. Riverside (314) 234-6857 MC 5003-101 Chicago, IL 60606 (312) 544-2804 Counsel for Petitioner March 21, 2003 * Counsel of Record WILSON-EPES PRINTING CO., INC. — (202) 789-0096 - WASHINGTON, D. C. 20001 QUESTIONS PRESENTED 1. Whether the government can hold a contractor liable under the False Claims Act for damages for the loss of a helicopter due to 1 defective part, notwithstanding that the government, pursuant to a federally-mandated contract clause, expressly relieved the contractor of liability for loss of or damage to government property resulting from defects or deficiencies in the goods supplied. 2. Whether the court below erred in holding, in conflict with the United States Court of Appeals for the Fifth Circuit, that damages recoverable under the False Claims Act, before trebling, are not limited “to the amount wrongfully paid to satisfy the false claim,” United States v. Aerodex, Inc., 469 F.2d 1003, 1011 (Sth Cir. 1972). il STATEMENT REQUIRED BY RULE 29.6 Pursuant to Rule 29.6 of the Rules of this Court, petitioner states that it has no parent corporation and no other publicly held corporation owns more than 10% of petitioner’s stock. All parties to the proceeding are listed in the caption of the case. TABLE OF CONTENTS SOR egg 6g yooh iy) te STATEMENT REQUIRED BY RULE 29.6................. EE SIT FRAE ROUTE ENED 6055 ccsceseneevevacosesroesnnsesees ie I I 65. ssssscucessvsvacnvnsecncsessonsnevevexernesess ee 2a och sds cesrvo wens cabatenbaxssxsveunnds’s RELEVANT PROVISIONS OF STATUTORY AND IIE MA aac csssonvecsbenovensiosirsessseneeernsecia REASONS FOR GRANTING THE PETITION ........... I. THIS COURT SHOULD RESOLVE THE CON- FLICT OVER IMPLIED FCA EXEMPTIONS FROM GOVERNMENT CONTRACTS............... II. THIS COURT SHOULD RESOLVE WHETHER FCA DAMAGES, BEFORE TREBLING, CAN EXCEED THE TOTAL AMOUNT PAID OUT BY REASON OF THE CLAIM ALLEGED TO eos ales see cisds cevsebinwtanMinascridbsaraiivis hahaa kl eb vac eyavaesGinadenookxcssierantssen 14 IV TABLE OF AUTHORITIES CASES Page Andover Newton Theological Sch., Inc. v. Con- tinental Cas. Co., 930 F.2d 89 (1st Cir. 1991)..... 20 Australia v. Lockheed Aircraft Corp., No. 69- 1623-WPG, 1972 US. Dist. LEXIS 15742 (C.D. Cal. Jan. 10, 1972) .....cccceccccesescesesveseeveseee 4 Cook County v. United States ex rel. Chandler, No. 01-1527, 2003 WL 890268 (U.S. Mar. 10, y | Se NA a ie ES Dart re er 2, 8, 24, 27 Daff v. United States, 78 F.3d 1566 (Fed. Cir. | SURE AR PRA acl teat yd in GRU nBas rho he Sakti dere 28 North Bank v. Cincinnati Ins. Cos., 125 F 3d 983 Ej SERS AI NR Sra tet OT 20 Rainwater v. United States, 356 U.S. 590 RE ONS AIRE My ei renhat, 7 United States v. Aerodex, Inc., 469 F.2d 1003 (Sth ns NEE sapiaccckdedi aaccconion uietndececee eset passim United States v. Bankers Ins. Co., 245 F.3d 315 SE SEE caceitsnucacucanuuthicosncanmen 17, 18 United States v. Borin, 209 F.2d 145 (Sth Cir. cs , 7 United States v. Bornstein, 423 US. 303 SINE baniicatce-cuaicile waencionmpausonchestoncie tas 11, 22, 28, 29 United States v. General Dynamics Corp., 19 ee ls, Ce iscnisicceicecescsionsssncctsactonens 28 United States v. Hibbs, 568 F.2d 347 (3d Cir. go WER RA Te array Wve aceite re ae rp Ey Te FURR AI NNDD 26 United States v. McNinch, 356 U.S. 595 (1958)... 6 United States v. Mead, 426 F.2d 118 (9th Cir. United States v. United States Cartridge Co., 198 F.2d 456 (8th Cir. 1952)........................ 10, 15, 16, 17 United States vy. Winstar Corp., 518 U.S. 839 LENS Ri pntninne fearon se eran va bet near Nn se 17, 19 i 4 i : Vv TABLE OF AUTHORITIES -— continued Page United States v. Woodbury, 359 F.2d 370 (9th as vis ankvcunctenusnnes vba seres aps oanvenntaner eats 29 United States ex rel. Marcus v. Hess, 317 US. FEF SII ciiiciinstuciixcdenesideadiarcapesemisaceansa 7, 22, 23, 25 Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765 (2000).................. € STATUTES AND REGULATIONS DOP re BI cisco a counnstoeticticaeauaeeioees bees 16 OE IDG ooo iosseccccscdcserrencsiees 16 98 Ries Ae PTI ceccds rs exsccorireceeoaeeeaeeae passim § 3731(D) occ ceccecceseee aE ice Seno 20 OE Tr I ao stesicccsvs scan eee 16 ie le We Ris ceawiccss bens eoedtaaiebanater ae 3 Be Pt ahspaiscakccatccens sxx deus armen 3 OS BE Bree PIGRIIOD vensxvsnacincdshtracenceéves 13 I oats cmniesssnactnatetuceserinatiay 6 ey RT TRA RON Sa 1,3 IEE iatccakecieestees ces eens 1,3, 14 Oe SE ca sss ccsesevsny ovis caidas 6 ID ivpiracievcccovesecsuien sane 6 I a crcareicslsiessnecponus stoheaire ae 6 OD PE A x csisddvussccacenncteevectans 1, 3, 4, 6, 14 Ei cicasscsnosseccaresacchadeaepenanes 6 Pe OD goss racescecdsvinnsntnacntotie 6 46 Fed. Reg. 40,221 (Aug. 7, 1981) .............000.... 6 61 Fed. Reg. 67,408 (Dec. 20, 1996)...............000.... 6 LEGISLATIVE HISTORY S. 1562, 99th Cong. (2d Sess. 1986).............0........ 28 H.R. 4827, 99th Cong. (2d Sess. 1986) ................. 28 S. Rep. No. 99-345 (1986), reprinted in 1986 Ra ee, MMi tiekicicacceaterssedotouetitmenind 27 FLR. Rep. No. 97-651 (1982)...................00ccccceeeneee 22 vi TABLE OF AUTHORITIES — continued Page 132 Cong. Rec. H6480 (daily ed. Sept. 9, 1986)... 27 H9388 (daily ed. Oct. 7, 1986)..... 27 OTHER AUTHORITIES Armed Serv. Procurement Regulations § 7- PO TI EE oisvcsdsitsnvushidisnecvienv cannes 5 Armed Serv. Procurement Regulations § 7- 104.45(b) (1974) oooc.cccccccccccecesesceseseeveveveesveveveee 5,6 By Retr: PT PR saat ncinnsccualstabcnimanidhieeey 29 ASPR Coverage of Warranties and Consequential Damages, attached to Letter from Council of Defense and Space Industry Associations, to Captain E.C. Chapman, Chairman, ASPR Committee (Aug. 12, 1971)................ccccsssesseees 5 Defense Procurement Circular 86 (1971) ............. 4,5 Memorandum from the Department of ithe Air Force, for the Chairman, ASPR Committee ES FR PD siksrsiccig sins cee ceube ena oniat 6 Restatement (Second) of Torts (1976) ................... 25 Center for Def. Info., Military Almanac 2001- BIE CE ii cicclconstiaviscaneieieric dante 20 Department of Justice, Civil Division Fraud Monograph (Nov. 1988).................:::ccccssceeeeeeees 29 4 U.S. Comm’n on Gov’t Procurement, Report of the Commission on Procurement (1972).......... 4, 5,21 1 J. White & R. Summers, Uniform Commercial Ce BE GE Fi ivan sarreecireonscasapenaens 29 PETITION FOR WRIT OF CERTIORARI Petitioner the Boeing Company (“Boeing”) respectfully requests that this Court grant its petition for a writ of certiorari to review the judgment of the United States Court of Appeals for the Sixth Circuit. OPINIONS BELOW The opinion of the court of appeals is published at 502 F.3d 637 (6th Cir. 2002), and appears in the Appendix to this petition (“App.”) at la-26a. The unpublished order of the court of appeals denying the petition for rehearing and rehearing en banc appears at App. 103a. The orders of the district court under review are published at 73 F. Supp. 2d 897 (S.D. Ohio 1999) and at 79 F. Supp. 2d 877 (S.D. Ohio 1999), and are reproduced at App. 65a-96a and 27a-64a. The district court’s unpublished order certifying an appeal to the court of appeals pursuant to 28 U.S.C. § 1292(b) appears at App. 99a-102a, and the unpublished order of the court of appeals accepting certification appears at App. 97a-98a. JURISDICTION The court of appeals entered judgment on September 12, 2002, and denied a timely petition for rehearing and rehearing en banc on January 24, 2003. This Court has jurisdiction under 28 U.S.C. § 1254(1). RELEVANT PROVISIONS OF STATUTORY AND REGULATORY LAW The relevant provision of the False Claims Act is codified at 31 U.S.C. § 3729, and is reproduced at App. 104a-106a. The relevant provisions of the Federal Acquisition Regula- tions are codified at 48 C.F.R. §§ 46.802-46.803 and 52.246- 24, and are reproduced at App.111a-112a and 124a-126a. 2 STATEMENT OF THE CASE This case presents two important questions of federal law that divide the lower courts and have broad ramifications for the allocation of risk and liability in government contracting. First, the United States Court of Appeals for the Sixth Circuit held that the standard limitation-of-liability clause for high- value items in government contracts set forth in the Federal Acquisition Regulations (“FAR”) does not apply to limit liability for damages under the False Claims Act (“FCA”). App. 8a-14a. This ruling is in conflict with decisions of other circuits that hold that there is no implied FCA exemption from limitation-of-liability or other clauses in government contracts. This ruling also contravenes the text and history of the regulation, threatens the federal policy of reducing the government’s procurement costs through self-insurance, and upsets reliance interests by shifting massive business risks associated with high-value civil and defense procurement from the government to private industry. Second, the Sixth Circuit held that damages recoverable under the FCA, before trebling, are not limited by the total amount the government paid on the claim alleged to be false. Specifically in this case, which involved a contract to retrofit existing helicopters with upgraded components, the court held that the government’s damages would be measured by the full value of a helicopter that was lost due to a defective part, an amount far in excess of the claim submitted by Boeing for the upgrade work. App. 18a-19a. This ruling directly conflicts with the rule established in United States v. Aerodex, Inc., 469 F.3d 1003 (Sth Cir. 1972), and recently recognized by this Court in Cook County v. United States ex rel. Chandler, No. 01-1527, 2003 WL 890268 (U.S. Mar. 10, 2003), that consequential damages — defined in Aerodex as “additional losses” beyond the amount the government “wrongfully paid,” 469 F.3d at 1011 — are not recoverable under the FCA. 3 Background 1. The FAR are prescribed and administered “jointly by the Secretary of Defense, the Administrator of General Services, and the [NASA] Administrator,” and govern the acquisition by contract of supplies and services throughout the federal government. 48 C_F_R. §§ 1.103(b), 1.104. It is the declared policy of the FAR that “[t]he Government will generally act as a self-insurer by relieving contractors, as specified in this subpart, of liability for loss of or damage to property of the Government” from defective supplies or services. /d. § 46.803(a). The FAR _ prescribe mandatory _limitation-of-liability clauses for inclusion in various kinds of government contracts. The most important of these is at issue in this case: the High-Value Item Clause, or HVIC. /d. § 52.246-24(a). A “high-value item” is a designated “contract end item that ... has a high unit cost (normally exceeding $100,000 per unit), such as an aircraft, an aircraft engine, a communication system, a computer system, a missile, or a ship.” /d. § 46.802. The HVIC specifically provides, subject to enumerated exceptions, that: notwithstanding any other provision of this contract, the Contractor shall not be liable for loss of or damage to property of the Government (including the supplies delivered under this contract) that (1) occurs after Government acceptance of the supplies delivered under this contract and (2) results from any defects or deficiencies in the supplies. Id. § 52.246-24(a). The only defects or deficiencies excluded from the limitation of liability are those resulting from “willful misconduct or lack of good faith on the part of any of the Contractor’s managerial personnel,” a term defined to a ee a ne 4 encompass only the most senior management of the company. Id. § 52.246-24(b).! The policy of government self-insurance embodied in the HVIC dates back to World War II. As the volume of procurement and hence’ insurance costs expanded dramatically during wartime, the military began self-insuring (1) to obviate the need for contractor insurance and thus reduce the proper pass-through costs to the government of insurance premiums, and (2) to encourage contractors to cooperate fuliy in investigating the causes of accidents. Australia vy. Lockheed Aircraft Corp., No. 69-1623-WPG, 1972 U.S. Dist. LEXIS 15742, at *2 (C.D. Cal. Jan. 10, 1972), CA. J.A. 388-89; 4 US. Comm’n on Gov't Procurement, Report of the Commission on Procurement 96 (1972) (“Commission Report’), C.A. J.A. 406 (noting that government payment of contractor insurance costs would be more expensive than self-insurance because premiums reflect not only the government’s loss experience but also administrative costs and insurer profit). Thus, in the postwar era “the general practice of Government in _ military contracting was to accept risk for loss or damage except for the warranted item that was defective.” Commission Report at 92,C.A. J.A. 402. To bring certainty and uniformity to government practice, the Department of Defense in 1971 issued Armed Service Procurement Regulations (“ASPR”) that were “aimed at reducing Government procurement costs by limiting the contractor’s risk.” Defense Procurement Circular 86 (“DPC 86”), at 1 (1971), C.A. JA. 434. One ASPR provision, ' Under the HVIC, “Contractor’s managerial personnel” means the Contractor’s directors, officers, or managerial personnel who supervise or direct “all or substantially all of the Contractor’s business”; “all or substantially all of the contractor’s operations” at a plant, laboratory, or separate location for performance of the contract; or “[a] separate and complete major industrial operation connected with the performance of this contract.” 48 C.F.R. § 52.246-24(b). Bias wee A hain nite SI BN nea ilies etl WEA aha bared Mabpodecainsiec 5 entitled “Limitation of Liability for Defects — Major Items,” prescribed a standard contract clause for all high-value items, ASPR § 7-104.45(b) (1974), C.A. J.A. 485-86, and was the prototype HVIC regulation. In issuing the regulation, the Department of Defense noted that the limitation-of-liability “policy and the clauses prescribed by this item are worded in terms of liability arising from supplies delivered to the Government,” and that “no distinction is made between liability founded in contract and in tort.” DPC 86, at 2, C.A. J.A. at 435; Commission Report at 96, C.A. J.A. at 406 (express repair/replacement remedies in the clause are “exclusive” remedies for wrongs “both in contract and tort”). The original HVIC set forth in DPC 86 excluded from its liability protection product defects resulting from two kinds of contractor conduct: (1) “fraud or gross negligence as amounts to fraud, on the part of any personnel of the Contractor,” and (2) willful misconduct and bad faith on the part of the Company’s high management. ASPR § 7- 104.45(b) (1971), in DPC 86, at 3, C.A. J.A. 437. The first of these exclusions drew protest from defense industry representatives, who explained in comments upon the rule that if a contractor were potentially liable for the fraud of any personnel, the business risk would be “more than any prudent management would be willing to accept without the protection of substantial liability insurance.” ASPR Coverage of Warranties and Consequential Damages 4, attached to Letter from Council of Defense and Space Industry Associations, to Captain E.C. Chapman, Chairman, ASPR Committee (Aug. 12, 1971), CA. JA. 464. “[T]he introduction of this exception goes a long way to negating the main purpose of DPC 86” by raising a “serious question whether DPC 86 implementation would have any real effect upon the cost of Contractor insurance included in the overall cost of the Government procurement program.” /d. at 5, C.A. J.A. 465. The Department responded by deleting the general fraud exception from the HVIC in reissuing the regulation in 6 1974. ASPR § 7-104.45(b) (1974), C.A. J.A. 485-86; Memorandum from the Department of the Air Force, to the Chairman, ASPR Committee 3 (Jan. 14, 1972), C.A. J.A. 652 (noting that deleting this exception “would eliminate contractor’s responsibility for damage te Government property resulting from defective items and caused by the fraud or gross negligence as amounts to fraud of any personnel of the contractor”). The HVIC, without substantive change as to its scope, was subsequently incorporated into the FAR, 46 Fed. Reg. 40,221 (Aug. 7, 1981), and now also extends to certain nondefense government contracts. 48 C.F.R. § 46.801(a). Accordingly, from at least 1974 to the present, the loss or damage to government property from product defects for which a government contractor is liable under the HVIC (and indeed under many other limitation-of-liability clauses under the FAR)’ are only .°»se that arise from “willful misconduct or lack of good faith on the part of any of the Contractor’s managerial personnel.” Jd. § 52.246-24(b).° 2. The False Claims Act was first enacted in 1863 “with the principal goal of ‘stopping the massive frauds perpetrated by large [private] contractors during the Civil War.” Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 781 (2000) (bracket in original) (quoting United States v. Bornstein, 423 U.S. 303, 309 (1976)). “[T]he False Claims Act was not designed to reach every kind of fraud practiced on the Government,” United ? See, e.g.,48 C.F.R. §§ 52.246-23(b) (defects in supplies not subject to the HVIC), 52.246-25(b) (defects in services), 252.228-7001(b) (“damage to, or loss or destruction of aircraft in the open, during operation, and in flight” prior to delivery to the government), 52.245-2(g) (loss or destruction of government-furnished property in the hands of the contractor), and 52.245-8(c) (loss of or damage to government facilities). > The re-promulgation of section 52.246-24 in 1997 did not amend the HVIC in any way that is material here. See 61 Fed. Reg. 67,408, 67,426 (Dec. 20, 1996). 7 States v. McNinch, 356 U.S. 595, 599 (1958), but was enacted with the specific purpose “to stop this plundering of the public treasury,” id., and “to protect the funds and property of the Government from fraudulent claims.” Rainwater v. United States, 356 U.S. 590, 592 (1958) (emphasis added). The FCA created a statutory remedy for fraudulently obtaining money and property that supplemented the common law. United States v. Mead, 426 F.2d 118, 123 n.4 (9th Cir. 1970); United States v. Borin, 209 F.2d 145, 148 (Sth Cir. 1954). As amended, section 2(a) of the FCA creates civil liability for any person who “knowingly presents, or causes to be presented, to an officer or employeeof 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 who makes certain false statements or engages in other defined conduct to obtain fraudulently the money or property of the government. 31 U.S.C. § 3729(a). The scienter required under the current FCA is less than that required for common law fraud; the term “knowingly” is defined to include not only actual knowledge of the relevant information and deliberate ignorance, but also “reckless disregard of the truth or falsity of the information.” Jd. § 3729(b). From its inception, the FCA allowed recovery of damages sustained from the prohibited acts in order “to provide for restitution to the government of money taken from it by fraud,” and authorized doubling of those damages “to make sure that the government would be made completely whole.” United States ex rel. Marcus v. Hess, 317 U.S. 537, 551-52 (1943) (emphasis added). It had long been held, however, that any “additional losses” sustained by the government beyond what it “wrongfully paid” were not within the purview of the Act. Aerodex, 469 F.3d at 1011. As this Court has recognized, during the 1986 revisions of the Act, a provision of the House bill that purported to overrule the Aerodex rule and provide for the recovery of such 8 “consequential damages” was rejected in the House-Senate conference. Cook County, 2003 WL 890268, at *7 & n9; infra at 26-28. Congress opted instead to provide for the treb- ling of damages “as a substitute for consequential damages.” Cook County, 2003 WL 890268, at *7 n.9. Accordingly, the FCA, as amended, limits recovery to “3 times the amount of damages which the Government sustains because of the [prohibited] act.” 31 U.S.C. § 3729(a) (emphasis added). Facts and Proceedings Below 1. Boeing has long supplied helicopters to the United States military. In the 1970’s, Boeing commenced research and development of a “next-generation” alloy to allow the manufacture of extremely durable helicopter gears that would extend service lives and withstand harsh battlefield conditions (including loss of engine lubrication). Boeing succeeded in developing that technology, which has been incorporated in, among other products, the Army’s Chinook 47 (“CH-47”) line of military airlift helicopters. In 1985 and 1989, Boeing entered into two contracts with the Army to upgrade certain components and systems of the Army’s CH-47 helicopters to a more advanced “D-Model” configuration. This task involved modernizing flight control, hydraulic, electrical, and drive systems (including redesigned transmissions). The Army requested that Boeing rely on two sources to manufacture the helicopter gears, and, after a rigorous qualification process, the Army approved the Speco Corporation as one of those sources. Because the hardness of the new advanced alloy posed significant challenges in machining the gears, Boeing set up an elaborate (and government-approved) quality assurance process at Speco that numerous witnesses testified without contradiction was unprecedented in its stringency. Army inspectors were deeply involved in this process. Among the 359 remanufactured helicopters that Boeing upgraded was No. 89-0165. Boeing invoiced the government 9 $4.1 million for the upgrade of this helicopter in 1990. In 1991, this helicopter made an emergency landing in Saudi Arabia during Operation Desert Storm. None of the crew suffered any serious injury, but the helicopter and its contents were destroyed in an ensuing fire. A joint Boeing-Army study later determined that the cause of the mishap was a previously undetected microscopic manufacturing defect in a gear made by Speco. 2. In 1997, the United States intervened in a qui tam action filed in the United States District Court for the Southern District of Ohio under the FCA by relator Brett Roby, a former Speco employee. The government’s amended complaint alleged that Boeing installed nonconforming Speco-made gears in Army helicopters in reckless disregard of information that the gears might contain microscopic manufacturing defects, and that Boeing therefore submitted false claims for payment because the claims certified contract compliance. App. 8a (“The allegedly fraudulent act in this case is Boeing’s ‘false[] represent[ation] that the helicopters conformed to contract requirements and fail[ure] to disclose their faulty manufacture to the United States Government.” (alterations in original) (quoting Am. Compl. at 3)). The allegations of recklessness centered upon the response of Boeing quality-assurance personnel to information about certain manufacturing processes employed by Speco. For the lost Saudi helicopter, the government claimed damages in excess of $38 million (treble the value of a new CH-47D helicopter). Jd. at 3la & n.7. As the court of appeals noted, Boeing “‘vigorously denies’ any knowing submission of a false claim in this case,” App. 8a n.3, but those fact issues were never tried. On cross- motions for partial summary judgment, the district court first ruled that the HVIC did not operate to restrict liability for damages under the FCA. Jd at 90a-95a. On the issue of damages, the district court held that consequential damages were unavailable under the FCA. /d. at 54a-S6a. Nonethe- 10 less, disregarding the distinction between direct and consequential damages, the district court held that the government was entitled to prove all foreseeable damages proximately caused by the filing of the false claim, including “the replacement and repair value of the destroyed and damaged helicopters, as well as the related costs and expenses associated with it.” /d. at S6a. After these rulings, the parties entered into a settlement (1) resolving other claims unrelated to the loss of the Saudi helicopter, (2) preserving the right of Boeing to appeal the HVIC and FCA damages rulings as to the Saudi helicopter claim, and (3) providing for liquidated damages, contingent on the disposition of the issues appealed. App. 3a-4a. As part of the settlement, the parties stipulated, inter alia, that the HVIC exception for misconduct by “Contractor managerial personnel” was not at issue in this case, and that the loss of the helicopter was caused by the defective Speco gear. /d. at 9a. The district court certified an interlocutory appeal on both the HVIC and FCA issues, and the court of appeals accepted jurisdiction. Jd. at 98a, 100a-101a. 3. A divided Sixth Circuit affirmed. On the HVIC issue, the majority acknowledged the “fairly broad terms” of the HVIC’s limitation on liability, but refused to construe the clause to limit liability under the FCA. App. 8a. The majority ruled simply that “[b]ecause nothing in the HVIC suggests that its limitation of contractor liability covers statutory violations, we hold that the district court did not err in concluding that the HVIC does not provide a defense to damages sought under the FCA.” Jd. at 10a. The majority conceded that “[o]n one level, the dispute in this case is essentially the same as the one in” United States vy. United States Cartridge Co., 198 F.2d 456 (8th Cir. 1952), see App. 10a, in which the Eighth Circuit held that a broad limitation- of-liability clause that did not reference the FCA nonetheless precluded FCA liability. 198 F.2d at 465. Relying upon the allegedly different context of United States Cartridge (a Si eee aute Bent Pw EN RAD ED sR RET EA RELI E BASU ELD APTLY EEO Dore cash Datel Lee CPE PH, SE Aly Se — 1] wartime contract with government supervision of production), however, the majority distinguished the present case based on its view that the helicopter remanufacturing contract was one performed “almost entirely during peacetime” and _ that “Boeing was not subject to government supervision or control.” App. 12a. On the issue of FCA damages, the majority purported to apply the “‘diminished value’” test of United States v. Bornstein, 423 U.S. 303 (1976), under which the court will “subtract the market value of what the Government received from what it was promised.” App. 16a. The majority then equated the market value of what “was promised” in the instant case with the market value of a fully-conforming . remanufactured helicopter. /d at 16a-17a. It then held that the market value of the helicopter “as received” was zero because the defective gear was flight-critical. /d. at 18a. The government was therefore entitled to recover treble “the value that Aircraft 89-0165 would have had if it had been of the specified quality.” /d. at 19a. Judge Boggs dissented on the grounds that the HVIC foreclosed recovery for the lost helicopter: “the Government [is] trying to do exactly what the plain and obvious wording of its contractual term says it will not do: recover from ‘the Contractor’ for the ‘loss of or damage to property of the Government.”” App. 20a. Judge Boggs refuted the majority’s claim that the HVIC could not be harmonized with the FCA: The HVIC does not overwrite or preempt the FCA by relieving contractors of liability for fraud. The FCA is still applicable to the contractors; the only difference made by the HVIC is that the Government has agreed that it will not hold the contractors liable under any theory for the value of the helicopter. Accordingly, the Government can sue the contractors under the FCA and seek a finding of liability for fraud; the Government merely can not seek damages for the value of the 12 equipment. The other penalties under the FCA are still applicable, and if the Government feels that it has been defrauded, it may debar Boeing from Government contracts. Id. at 21a-22a. Moreover, recounting the history of the HVIC outlined above, Judge Boggs declared that the majority’s decision was contrary to the purpose of the HVIC, which was to reduce government procurement costs by eliminating the need for contractor insurance. Jd. at 25a. Under the majority’s decision, “contractors will have to insure against potential FCA liability for treble damages for the loss of high- value items resulting from actions that might be held to be fraudulent on the part of any personnel,” and “[p]resumably, this cost will be passed on to the Government.” /d. REASONS FOR GRANTING THE PETITION Review by this Court of both of the Sixth Circuit’s separate holdings is necessary (i) to resolve conflicts between the Sixth and other Circuits with respect to each such holding, and (ii) to provide for the uniform resolution of critical and unsettled questions relating to the relationship between the United States and its suppliers of major military systems and other materiel. The Sixth Circuit’s holding that the limitation of liability plainly expressed in the High Value Items Clause (“HVIC”) does not in any way limit a contractor’s liability for damages in an FCA case is irreconcilable with Eighth Circuit precedent. Moreover, the construction of the HVIC espoused by the court below vitiates the settled contractual understanding between the government and its suppliers of major weapons systems and other equipment that the government generally bears the risk of loss of “high value” items (such as ships, missiles or, as in this case, aircraft) resulting from defects in their manufacture. Thus, the decision below, if not reviewed, will force the government’s 13 most important suppliers to decide whether to obtain commercial insurance against the risk of loss of every airplane, ship or other multi-million dollar system they manufacture and to charge the very high cost of such insurance to the government, as the FAR permits;* to self- insure and risk insolvency; or to cease doing business with the government altogether. The Sixth Circuit’s second holding -— that damages recoverable under the FCA, before trebling, are not limited in any way by the total amount paid by the government on the claim alleged to be false — conflicts squarely with the Fifth Circuit’s holding that baseline damages under the FCA are limited to “the amount wrongfully paid to satisfy the false claim.” Aerodex, 469 F.2d at 1011. Moreover, as shown in detail infra at 22-30, the Sixth Circuit has done in this case precisely what Congress -declined to do in the 1986 Amendments to the FCA: namely, overrule Aerodex and permit consequential damages under the FCA. Thus, the decision below deals a double blow to longstanding government procurement policies and those who do business with the government. First, by eviscerating the HVIC, it upsets decades-old reliance interests of government contractors and threatens to increase government procurement costs. Second, the Sixth Circuit’s dramatic expansion of FCA damages leaves contractors faced with nearly unbounded exposure to three times potentially massive damages (such as an entire aircraft), no matter how small their claim. The Court should grant certiorari to foster and restore uniformity among the courts, and prevent undue disruption of the contractual relationships between the United States and its suppliers, large and small, of military and other equipment. * The costs of insurance for the risk of loss of or damage to government property may be passed through to the extent a contractor is liable for such loss or damage. 48 C.F.R. § 31.205-19(a)(2)(iv). 14 I. THIS COURT SHOULD RESOLVE THE CON- FLICT OVER IMPLIED FCA EXEMPTIONS FROM GOVERNMENT CONTRACTS. The decision of the divided court of appeals creates a substantial conflict among the circuits about whether the HVIC operates as limitation on damages under the FCA. In holding that it does not, the Sixth Circuit has read an exception into the Clause that is not encompassed in its plain language, thereby disrupting the settled expectations of defense contractors about the clear rules that have governed contractor liability for the past 5O years. Federal regulation requires the HVIC to be included in virtually every government contract for the purchase of high-end military systems such as planes, ships and missiles, as well as many civilian systems. 48 C.F.R. § 46.803(b). The Sixth Circuit’s unprecedented decision negates the FAR’s carefully crafted rules r2garding assumption of risk for damages to these critical defense systems, and thus leaves military contracting in a state of great uncertainty at a particularly critical juncture in our Nation’s diplomatic and military history. 1. The HVIC expressly states that a “Contractor shall not be liable for loss of or damage to property of the Govern- ment ... that (1) occurs after Government acceptance of the supplies delivered under this contract and (2) results from any defects or deficiencies in the supplies.” Jd. § 52.246-24 (emphasis added). As even the majority below conceded, this provision plainly “limits contractor liability for high-value items in fairly broad terms.” App. 8a. Despite the plain language and history of the HVIC, see supra at 3-6, the majority held that the protections of the HVIC did not extend to damages arising under the False Claims Act, because “nothing in the HVIC suggests that its limitation of contractor liability covers statutory violations.” App. 10a. Thus, as Judge Boggs emphasized in his dissenting opinion below: Put most simply, this case is about the Government trying to do exactly what the plain and obvious wording ARE ARRNNY ENO ADE Mi TIS id esa Rete SOI ERT ANS MOE Si dak 15 of its contractual term says it will not do: recover from “the Contractor” for the “loss of or damage to property of the Government.” Id. at 20a (Boggs, J., dissenting). The decision below is in direct conflict with the United States Court of Appeals for the Eighth Circuit, which refused to exempt FCA claims from an express contractual provision limiting a defense contractor’s liability to the government. United States v. United States Cartridge Co., 198 F.2d 456 (8th Cir. 1952). United States Cartridge involved a contract for the mass production of ammunition that contained a clause strikingly similar to (although predating) the HVIC; it provided “‘that the Contractor shall not be liable’” for any loss or damage to government property unless it resulted from the misconduct “‘of the corporate officers of the Contractor or of other representatives of the Contractor having supervision and direction of the operation of the Plant as a whole.’” /d. at 461. The government brought an action against the con- tractor under the FCA, arguing that if the contract clause were “construed to exempt” the contractor fiom liability for fraud, it would be “void because in derogation of the False Claims Statute, [and] contrary to public policy.” /d. The Eighth Circuit rejected the government’s argument and affirmed the dismissal of its FCA claims. The court stated that “(t]he Secretary of War ... unquestionably by the contract in suit undertook to allocate the risks and obligations which were to be assumed by the [contractor] and those which were to be borne by the Government.” /d at 465. The Secretary was empowered to decide that the national interest was best served by the government bearing the risk of fraud by non- managerial employees, and the government would be held to the terms of the bargain it struck. Jd. In direct conflict with this ruling, the Sixth Circuit has refused to allow a similar contractual allocation of risk, holding that “[t]he HVIC does not foreclose the FCA as a 16 means for the Government to recover damages.” App. 14a; see also id. at 20a (objecting to the majority’s holding “that the Government can seek under the FCA exactly what it has contracted through the HVIC not to” (Boggs, J., dissenting)). Indeed, the majority even acknowledges that “the dispute in this case is essentially the same as the one” in United States Cartridge. Id. at 10a. The majority sought to distinguish United States Cartridge on the basis that the contract in question was a response to a wartime crisis and involved unusual government supervision, but its proposed distinction is unavailing.’ First, because of its experience in World War II, the Department of Defense deemed it to be in the government’s interest to formalize and extend its policy of self-insuring to virtually all contracts for the procurement of high-value defense systems. Hence, the HVIC has applied since its inception to all high-value weapons procurement (including any wartime procurements), regardless of the nature of the government’s involvement in the execution of the contract. Second, Congress has drawn no distinction between the Secretary’s statutory power to enter into procurement contracts during war and peacetime, and there is no substantive difference between the Secretary’s statutory powers now and at the time of the United States Cartridge contract. Compare 10 U.S.C. §§ 2202, 2302-2331, with 198 F.2d at 463; see also 41 U.S.C. § 405(a). Third, these are high-value military systems, purchased by the government to assist in the nation’s defense and, if necessary, to utilize in armed conflict. In fact, the helicopter in this case was lost in Saudi Arabia in the midst of Operation Desert * The Sixth Circuit also suggested that “Boeing was not subject to Government supervision or control” to the same extent as the U.S. Cartridge Company, and therefore that the two contracts could be distinguished on that basis. App. 12a. To the contrary, as is true with many high-value defense contracts in the modemi era, government supervision of contract performance was extensive and included the placement of numerous government quality assurance representatives and inspectors at both Speco and Boeing. C.A. J.A. 334, 761. 17 Storm. The meaning of plain contract language cannot shift depending on the happenstance of whether the contract is signed — typically years before the damage — when the nation is at war or at peace. Most fundamentally, the Eighth Circuit discussed the special circumstances of the United States Cartridge contract to explain why it was not against public policy for the Secretary “to limit the defendant’s risks in that regard to whatever extent he deemed necessary in order to secure its managerial services to produce, under Government supervision, ammunition for the armed forces.” 198 F.2d at 465. The risks facing that contractor may have been different from the contractor risks (catastrophic loss) that animate the HVIC, but that difference in no way affects the core holding of United States Cartridge: when the Department of Defense, pursuant to statutory authority, determines that it is in the national interest for the government to assume the risk of loss from nonmanagerial fraud through unqualified limitation-of- liability clauses, those clauses must be enforced by their plain terms even against claims for damages under the FCA. The government can and should be held to the terms of its bargain. The decision of the majority below, by refusing to enforce the plain language of the HVIC, directly conflicts with United States Cartridge. See also United States v. Winstar Corp., 518 US. 839, 909 (1996) (plurality) (noting that an “allocation of risk” to the government “that was essential to the contract between the parties” must be enforced according to its terms). The majority’s decision also conflicts with the Fourth Circuit’s recent decision in United States v. Bankers Insurance Co., 245 F.3d 315 (4th Cir. 2001). In that case, the government argued that it should not be bound by a contractual provision mandating submission of a dispute to arbitration because it wished to pursue a separate statutory FCA claim. The government argued that the “FCA claim [was] premised on a unique statutory right,” id at 325, and 18 that enforcement of the arbitration provision would dilute “the statutory authority of the Attorney General as the exclusive enforcer of the FCA.” /d. at 323-24. In rejecting the government’s arguments, the Fourth Circuit began with the “well settled” principle “that, when the United States is a party to a contract, ordinary principles governing contracts and their interpretation remain applicable.” Jd. at 321. The court then held that “[t]he Government should comply with its contract obligations, and it cannot avoid them merely by invoking a statutory civil claim, such as one contemplated under the FCA.” Jd. at 324. The majority below attempted to distinguish Bankers Insurance on the ground that the contract provision there only delayed the government’s FCA claim, because the government retained the right to litigate after arbitration. App. 12a-13a. But, as Judge Boggs rightly observed, this is a false distinction, because “the reasoning of Bankers Insurance still applies to the case at hand” and commands a different result. /d at 22a n.2. The Sixth Circuit in this case condoned the govern- ment’s attempt to do what the Fourth Circuit ruled it cannot: evade enforcement of the plain language of a contractual provision because of the existence of an alleged FCA violation. The Sixth Circuit’s decision is not justified by the need to reconcile the HVIC with the FCA, as it suggests. App. 7a, 13a. As Judge Boggs pointed out, the HVIC does not prevent enforcement of the FCA, it merely prevents the government from recovering one element of loss for which the government by contract explicitly assumed the risk as a matter of sound and longstanding policy. /d. at 21a-22a. Such a result, Judge Boggs observed, does not override the FCA; it merely “uphold[s] the obvious coverage of a standard assumption of risk clause, under which the Government agreed not to exercise certain rights it would otherwise have in exchange for a benefit.” Jd at 25a. The government, moreover, can still recover FCA damages other than for the 19 loss of the helicopter; collect civil penalties; proceed criminally; and debar the violator from government contracting. /d. at 2la-22a, 25a. 2. The conflicts of authority identified above alone justify certiorari, but the overriding importance of this issue makes this Court’s immediate review imperative. Assumption of risk clauses “ensure[] ... the government is able to obtain needed goods and services from parties who might otherwise, quite rightly, be unwilling to undertake the risk of government contracting.” Winstar, 518 U.S. at 913 (Breyer, J., concurring). Yet, under the Sixth Circuit’s ruling, not just the HVIC but numerous assumption-of-risk clauses incorporated in government contracts pursuant to the FAR, supra at n. 2, are ineffective against FCA damages claims. The exemption of FCA damages claims from the HVIC creates broad exposure for contractors. Contractor liability under the FCA is not limited to common law fraud, but now includes “deliberate ignorance” and “reckless disregard of the truth or falsity of the information,” 31 U.S.C. § 3729(b), which the government in this and other cases has asserted amounts to gross negligence. In the aftermath of an accident, even good-faith actions on mission-critical parts (which are ubiquitous in complex weapons systems) can be recast as “reckless” conduct in breach of contract. The act of a single low-level employee, among perhaps thousands who may work on a major weapon system, can thus create substantial liability for contractors under the treble damages provision of the FCA. The reliance interests undercut by the decision below are staggering. Given the clear Department of Defense policy of self-insurance that has been in effect since World War II, and the amendment of the HVIC in 1974 to eliminate an exception for fraud by all personnel save the most senior managers, contractors have forgone the purchase of insurance that would protect against risk of damage or loss of high- 20 value government items. Now, as a result of the Sixth Circuit’s unprecedented and unexpected decision, contractors face potentially massive retroactive liability against which they could have, and surely would have, insured. See, e.g., North Bank v. Cincinnati Ins. Cos., 125 F.3d 983, 988 (6th Cir. 1997) (intentional misconduct insurable); Andover Newton Theological Sch., Inc. vy. Continental Cas. Co., 930 F.2d 89, 91 (Ist Cir. 1991) (same). This exposure encom- passes almost every major space and military contract of recent vintage: contracts that may have been executed many years (even decades) ago but because of their complexity are still being performed, as well as the fully performed contracts that are still subject to the lengthy FCA limitations period (which extends up to 10 years from the date of violation, 31 U.S.C. § 3731(b)). The financial risks to contractors and subcontractors who supply, retrofit or repair aerospace and defense systems dwarf even the substantial liability the government sought to impose here. A B-2 Bomber or a Virginia Attack Submarine has a unit cost of over $2 billion; a LPD-17 Landing Ship or a DDG-51 Destroyer nearly $1 billion; a J-STARS Recon- naisance Aircraft $560 million; a Trident missile $61 million. Center for Def. Info., Military Almanac 2001-2002, at 36 (2002). Spacecraft and satellite risks are of similar or greater magnitude. Risk is not limited to total loss of the craft; damage to even a single subsystem may run well into the millions of dollars. All these potentially ruinous losses are subject to trebling under the FCA if, the government maintains, as little as gross negligence by any employee is found in relation to a defective part. The decision below immediately shifts billions of dollars of risk from the government to private industry. Given the plain meaning and history of the HVIC, it would be manifestly unfair to allow the government to reap such a windfall at contractors’ expense. Over the last half century, the government has avoided significantly higher procurement a A ee Me ee TS ee 21 costs by inducing contractors and subcontractors to forgo the purchase of insurance through a promise of self-insurance. Now in_the face of a significant loss, the government has disclaimed its previous bargain and sought to impose an unbargained-for liability on its contractors. At a minimum, the legality of such massive risk-shifting is an issue that should be decided by this Court, and not left in the hands of a badly divided Sixth Circuit. The prospective effects of the decision below are equally intolerable because of the pervasive uncertainty in government contracting that will persist until this Court settles the scope of the HVIC and other FAR limitation-of- liability clauses. No contractor can accurately price bids for weapons or other major systems without knowing its liability risks. Furthermore, so long as it is uncertain whether the HVIC operates to limit damages under the FCA, no prudent contractor will leave potentially ruinous risks uninsured where insurance can be purchased. Indeed, not only prime contractors, but also subcontractors will now have to insure, because each subcontractor will face potential liability to prime contractors that no longer would be protected by the HVIC. The resulting pyramid of insurance “premiums tor product liability insurance protection throughout the complete subcontracting chain” for risks of great magnitude would add vast sums to government procurement costs, Commission Report at 97, C.A. J.A. 407, which defeats the very purpose of the HVIC program. Where commercial insurance is unavailable, companies that cannot afford the risk of self- insurance (particularly suppliers of low-value but mission- critical parts) may abandon government contracting, those that can self-insure must raise contract prices to cover the risks. Judge Boggs recognized the disastrous implications of the majority’s holdin;; in his dissent: [U]nder [the court’s decision today], contractors will have to insure against potential FCA liability for treble 22 damages for the loss of high-value items resulting from actions that might be held to be fraudulent on the part of any personnel. Presumably, this cost will be passed on to the Government. App. 25a (Boggs, J., dissenting). This Court should review the decision below, which manifestly undermines the HVIC regulation that has been a cornerstone of government procurement policy, as well as decades of reasonable reliance by contractors upon that regulation. Il. THIS COURT SHOULD RESOLVE WHETHER FCA DAMAGES, BEFORE TREBLING, CAN EXCEED THE TOTAL AMOUNT PAID OUT BY REASON OF THE CLAIM ALLEGED TO BE FALSE. The Sixth Circuit’s holding on damages recoverable under the FCA deepens the divisions among the Circuits and adds substantially to the uncertainty and lack of uniformity in the courts concerning the measure of damages under the FCA. In particular, the Sixth Circuit’s decision is out of step with United States v. Bornstein, 423 U.S. 303 (1976) and United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943), and conflicts squarely with the Fifth Circuit’s holding in Aerodex that “a proper application of the [FCA] damage provision limits the government’s claim to the amount that was paid out by reason of the false claim.” 469 F.2d at 1011.° Aerodex teaches that damages that exceed the amount the government paid for a defective product, such as the cost of repairing the defect or replacing the product, may be recoverable by the government under breach of warranty, common law fraud or other theories, but they are not the measure of baseline damages to be multiplied under the FCA. Moreover, by ° At the time of the Aerodex decision, the FCA referred to damages sustained “by reason of” the defendant’s act. This phrase was changed to the current language, “because of,” 31 U.S.C. § 3729(a), as part of a recodification in 1982, but the change was not intended to make any “substantive changes in the law.” See H.R. Rep. No. 97-651, at 2 (1982). or Pie i iva ait lt sd Rass 23 allowing damages, before trebling, that are a multiple of the amount of the allegedly false claim, the Sixth Circuit works a change in the FCA that Congress expressly rejected in connection with the comprehensive 1986 Amendments to the FCA, when it specifically refused to overrule Aerodex, and rejected consequential damages under the Act. No court has ever before ruled that, under the damages formulation endorsed by this Court in Bornstein, see infra at n. 11, a supplier of remanufacturing services and upgraded components could be liable under the FCA for three times the value of an entire aircraft if a single upgraded part is defective. In that sense, the Sixth Circuit’s ruling is at odds with every court that has addressed these issues. By dramatically expanding a contractor’s liability under the Bornstein rule, the Sixth Circuit’s opinion threatens disastrous consequences for government contractors and underscores the need for this Court to speak authoritatively on this issue. 1. This Court long has recognized that “the chief purpose of the [FCA] was to provide for restitution to the government of money taken from it by fraud, and that the device of double damages plus a specific sum [as a penalty for each false claim] was chosen to make sure that the government would be made completely whole.” Hess, 317 U.S. at 551-52.’ Thus, the “device” in the FCA for ensuring complete recovery by the government is to provide for multiplication of the damages caused by the act of fraudulently inducing the government to pay out money, not to provide for recovery of all “reasonably foreseeable” damages that are the consequence of the facts that render the claim false, then trebling those damages. In the current Term, sixty years after Hess and in light of the 1986 Amendments to the FCA, the Court has again recognized this principle: “The treble damage provision [of the FCA] was, in a way, adopted by ’ As noted supra at 7-8, the 1986 FCA Amendments changed the statute to provide for treble, rather than double, damages. 31 U.S.C. § 3729(a). 24 Congress as a substitute for consequential damages.” Cook County, 2003 WL 890268, at *7 n.9. The Fifth Circuit’s decision in Aerodex comports completely with this analysis, while the Sixth Circuit’s decision in the instant case directly conflicts with it. In Aerodex the defendant had sold aircraft engine bearings to the Navy that were mislabeled so as to appear to meet a contract specification that they did not, in fact, meet. The Navy paid a total of $27,000 for the bearings themselves, but after the discrepancy was discovered, the Navy incurred an additional cost of nearly $161,000 in removing and replacing bearings that had been installed. 469 F.2d at 1010. The district court had computed the government’s damages by first adding these two amounts together, before doubling (as the FCA then provided) the resultant sum. The Fifth Circuit reversed: Upon careful analysis, we hold that the language of the False Claims Act does not include consequential damages resulting from delivery of defective goods. The statute assesses double damages attributable to the “act,” which in this case is the submission of the false vouchers. The submission of these vouchers was not the cause of the government’s consequential damages. The delivery and installation of the bearings in the airplanes, not the filing of the false claim, caused the consequential damages. Id. at 1011. Accordingly, the Fifth Circuit ruled that “a proper application of the [FCA] damage provision limits the government’s claim to the amount that was paid out by reason of the false claim.” Id. The decision of the Sixth Circuit in the instant case is in irreconcilable conflict with Aerodex.* First and most obviously, the Sixth Circuit here has held that the FCA permits recovery of damages before trebling for the value of * Although all parties in the court below briefed the Aerodex issues extensively, the Sixth Circuit does not even refer to the case in its opinion. 25 an entire remanufactured aircraft “if it had been of the specified quality” (possibly as much as $13 million), App. 19a & n.9, which is far in excess of the Aerodex limit of the amount paid out by reason of the claim alleged to be false (here, $4.1 million). Second, the Sixth Circuit has staked out a construction of the FCA that cannot be squared either with Aerodex, with the plain language of the statute, or with legislative intent. As the Aerodex court reasons, the plain language of the FCA provides for recovery of the damages that the government “sustains because of the act” of the defendant — that is, the submission of a false claim for payment. 31 U.S.C. § 3729(a). The damage sustained by the government because of the submission of a false claim is the payment of money that the government should not have had to pay. 469 F.2d at 1011. The consequences of the facts that make the claim false (in Aerodex, the fact that the bearings were defective) may cause other damages to the government, even the loss of an aircraft. Those damages, even if recoverable under a number of other theories, are not recoverable under the FCA.” Jd. The FCA is about recovering money the government was fraudulently induced to pay, not about fashioning remedies for the consequences of allegedly substandard parts. See Hess, 317 U.S. at 551-52. The Sixth Circuit’s decision sidesteps the causation language of the FCA’s damages provision and jumps straight to the conclusion that the submission of a false claim ° In fact, the Aerodex court permitted the government in that case to recover, on a breach of warranty theory, precisely the same consequential damages it disallowed under the FCA. 469 F.2d at 1011-12. The government’s amended complaint in the instant case (as is typical in cases of this nature) also contains a common law fraud count, see C.A. J.A. 118, and consequential damages typically are recoverable in common law fraud cases. See Restatement (Second) of Torts § 549(1)(b) & cmt. d (1976). Thus, if the HVIC were not a bar, the government would have other avenues for fully recovering its consequential damages, but should not be permitted first to add consequential damages to the contract price, then recover three times that combined amount under the FCA. 26 “caused” the helicopter in question to crash: “Although the loss of [the helicopter] occurred after Government acceptance and resulted from the defective Speco gear, it was actually caused by Boeing’s initial misrepresentation that the helicopter conformed to contract requirements.” App. 9a-10a. This analysis confuses and conflates the damage caused by | submission of the false claim, i.e., the unjustified payment of money, and the accident caused by the underlying product defect, independent of any certification of quality or product conformance. As the analysis of the FCA’s language in Aerodex makes. . clear, the conduct at which the False Claims Act is directed is : inducement of payment under false pretenses, not negligence ? in manufacture or design, and the injury sought to be remedied is the direct financial harm represented by that payment, not consequentia] damages from product defects. Even if it could be said that the mishap here may not have occurred “but for” a multitude of events culminating in the | operation of the helicopter with a defective part, the Sixth Circuit’s holding that damage to property is compensable under the FCA if it would not have occurred “but for” the alleged false claim expands the statutory remedy far beyond its plain language and Congress's underlying intent. This expansive reading also has been consistently rejected by other circuits. See, e.g., United States v. Hibbs, 568 F.2d 347, 351- 52 (3d Cir. 1977) (discussing cases). 2. Congress’s actions in passing the 1986 Amendments to the FCA confirm that the plain language of the FCA regarding damages means what Aerodex says it means and that the Sixth Circuit, by construing the statute in a way that conflicts with Aerodex, has done precisely what Congress refused to do in 1986. Amendments proposed in both the Senate and the House would have modified the FCA to allow for recovery of “consequential” damages. The precise purpose of these amendments, as made clear in the Senate Tw er ee GL ands ee OR et ae Foe eee Eee, eS eee | ee ee Ser 27 Report describing its proposed amendment, was to overrule Aerodex: [The proposal] also amends [the FCA] to permit the Government to recover any consequential damages it suffers from the submission of a false claim. For instance, where a contractor has sold the Government defective bearings for use in military aircraft, the Government could recover not only the cost of the new ball bearings, but the much greater cost of replacing the defective ball bearings. See United States v. Aerodex Inc., 469 F.2d 1003 (Sth Cir. 1972). S. Rep. No. 99-345, at 19 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5284. Advocates of the House version of the amendments also understood that by making “consequential” damages available the government would be able, if the FCA were amended as proposed, to recover replacement costs. See, e.g., 132 Cong. Rec. H6480 (daily ed. Sept. 9, 1986) (remarks of Rep. Brown) (the proposed bill includes “consequential damages” to ensure that “recovery will reflect actual replacement cost in every instance”). In the end, however, these proposed amendments to the FCA were rejected by Congress in the bill as passed. 132 Cong. Rec. H9388 (daily ed. Oct. 7, 1986). The bill’s leading proponent in the House, Representative Glickman, explained why: While the previous version of the bill passed by the House had included “double damages, consequential damages and costs,” the version that ultimately was enacted into law “provides for treble damages and deletes consequential damages.” /d. Representative Glickman identified this change as one of two “major differences” between the original House bill and the bill as compromised with the Senate, and noted that these compromises were “necessary in order for this legislation to become law.” /d. It is clear from this history that, as this Court recently noted in Cook County, treble damages were adopted in 1986 as a “substitute” for “consequential” damages. 2003 WL 890268, at *7 n9. 28 Moreover, under both the House and the Senate proposals, “consequential” damages were added on only after actual damages had been doubled or trebled, as the case may be.'” Thus, none of the 1986 proposals before Congress went nearly so far as the government asks the courts to do in this case: /.e., to include “consequential” damages in the baseline damages to be trebled. 3. The Sixth Circuit’s decision in this case also deepens existing divisions among the courts as to the proper measure of damages in an FCA case involving substandard products. The court below pays lip service to the FCA measure of damages endorsed by this Court in Bornstein,'' but no other court has extended the Bornstein rule as far as the Sixth Circuit in the instant case, which treated the value of the entire remanufactured aircraft as the benefit of a bargain to upgrade specified components of helicopters already owned by the government. The cases do reflect, however, division and uncertainty as to the meaning of the Bornstein rule.” '° See S. 1562, 99th Cong (2d Sess. 1986), as passed by the Senate (providing for “3 times the amount of damages” unless the court finds certain conditions indicating the defendant’s cooperation with federal officials, “in which case the court may assess not less than 2 times the amount of damages, in addition to the amount of consequential damages”); H.R. 4827, 99th Cong. (2d Sess. 1986), as reported from the House Comm. on the Judiciary, June 26, 1986 (providing for “an amount equal to consequential damages ... plus 2 times the amount of damages (other than such consequential damages)”). '' Under Bornstein, “[t}he Government’s actual damages are equal to the difference between the market value of the [goods] it received and retained and the market value that the [goods] would have had if they had been of the specified quality.” 423 U.S. at 316 n.13. '? For example, the Federal Circuit in Daff v. United States, 78 F.3d 1566 (Fed. Cir. 1996), allowed damages under the FCA, without analysis of the Aerodex or Bornstein issues, for the Government’s costs of testing and repair of defective components. In contrast, the Second Circuit, in United States vy. General Dynamics Corp., 19 F.3d 770, 777 (2d Cir. 1994), stated that “consequential damages” are recoverable “under the FCA and federal common law,” but the only damages at issue in that case 29 While the damages permitted by the Sixth Circuit would typically be considered “consequential” under the Uniform Commercial Code or the common law,” the taxonomy of “direct” versus “consequential” damages has engendered considerable confusion. Indeed, as if to capitalize on the confusion, the Department of Justice (“DOJ”) has instructed its attorneys that, “in attempting to recover damages which flow from the false claim, they should not be labeled ‘consequential damages[,]’ .... [but] should be shown to be the ‘natural and proximate’ result of the defendant’s misrepresentations.” DOJ, Civil Division Fraud Monograph 161 (Nov. 1988). Indeed, this “labeling” tactic worked for the government below, the district court held that “consequential” damages are not recoverable under the FCA, but that the government could nonetheless potentially recover damages, before trebling, up to and including the aircraft’s replacement cost. App. 54a, 56a, 63a. A consistent application of the Bornstein measure of FCA damages and the Aerodex rule limiting recovery to the amount improperly paid out by the government would contribute considerable certainty in this area. This solution would entail reaffirmation of the measure of damages first articulated by the Ninth Circuit many years ago in a case cited with approval by this Court in Bornstein, 423 U.S. at 317 n.13. In United States v. Woodbury, 359 F.2d 370, 379 (9th Cir. 1966), the court stated: “Ordinarily the measure of the were actual overcharges to the government resulting from a kickback. The recovery of an actual overcharge in an FCA case cannot in any sense be considered “consequential” damages. 'S See, e.g., 1 J. White & R. Summers, Uniform Commercial Code § 10- 4, at 567 n.10 (4th ed. 1995) (“Whenever a defective component part causes an accident that damages the entire product, a large part of the total damage may be consequential.”); U.C.C. § 2-715(2)(b) (“Consequential damages resulting from the seller’s breach include ... injury to person or property proximately resulting from any breach of warranty.”); id. cmt. 5 (consequential damages include those flowing from “the use of goods without discovery of the defect causing the damage”). 30 government’s damages would be the amount that it paid out by reason of the false statements over and above what it would have paid if the claims had been truthful.” This measure of damages is consistent with Bornstein, consistent with Aerodex and the Congress’s refusal to overrule it, and consistent with the plain language of the FCA." 4. The consequences of the Sixth Circuit’s decision, if unreviewed, on the government contracting community would be breathtaking. In this case, a supplier that submitted a claim for $4 million to the government for retrofitting an existing aircraft could be found liable for nearly $40 million in damages, depending on the valuation of the aircraft it had upgraded. Indeed, under the Sixth Circuit’s analysis, it would make no difference if the “remanufacturing” contract had been for only $1 million per aircraft or less and the value of the upgraded aircraft (like a B-2 bomber) stretched to more than a billion dollars; the contractor would still be liable for “the value that [the aircraft] would have had if it had been of the specified quality,” App. 19a, times three. Nothing in the FCA justifies such a perverse rule, and it is unclear how many companies would continue to be willing to contract, or at what prices, with the government in such circumstances. Review by this Court is therefore essential. CONCLUSION For the foregoing reasons, the petition for writ of certiorari should be granted. '* Not only did the Sixth Circuit state the wrong standard for FCA damages, but its analysis is absurd on its own terms. The market value “as received” of a remanufactured helicopter with a defective gear is not zero, see App. 18a, any more than a 2003 Mercedes Benz with a defective transmission part has a market value of zero. Moreover, the market value of what Boeing “promised” was not the market value of the entire aircraft, id. at 18a-19a. Boeing contracted to upgrade an existing CH-47 helicopter owned by the government; the independent, pre-existing value of the government's helicopter was no part of what Boeing bargained to provide. CARL S. RAUH AMY SABRIN SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 1440 New York Avenue, NE Washington, D.C. 20005 (202) 371-7000 JOHN W. WALBRAN THE BOEING COMPANY P.O. Box 516 MC S§S 100-3340 Saint Louis, MO 63166 (314) 234-6857 Respectfully submitted, CARTER G. PHILLIPS* P. DAVID RICHARDSON STEPHEN B. KINNAIRD JENNIFER M. COLLINS SIDLEY AUSTIN BROWN & WOOD LLP 150i K Street, N.W. Washington, D.C. 20005 (202) 736-8000 PAUL J. EHLENBACH THE BOEING COMPANY 100 N. Riverside MC 5003-101 Chicago, IL 60606 (312) 544-2804 Counsel for Petitioner March 21, 2003 * Counsel of Record APPENDICES la APPENDIX A UNITED STATES COURT OF APPEALS SIXTH CIRCUIT No. 00-4157 UNITED STATES OF AMERICA ex rel. BRETT ROBY, Plaintiff-Appellee, V. BOEING Co., Defendant-Appellant. Argued: Jan. 25, 2002 Decided and Filed: Sept. 12, 2002 Before MERRITT, BOGGS, and MOORE, Circuit Judges. MOORE, J., delivered the opinion of the court, in which MERRITT, J., joined. BOGGS, J. (pp. 649-52), delivered a separate dissenting opinion. OPINION MOORE, Circuit Judge. This action was brought under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3733, to recover damages for the loss of a helicopter that Defendant-Appellant Boeing Co. (“Boeing”) had remanufactured or overhauled for military use. Boeing now raises the questions of law certified for interlocutory appeal by the district court, arguing that the district court erred in holding (1) that the High-Value Items Clause (“HVIC”), set forth in 48 C.F.R. (“FAR”) § 52.246- 24, and incorporated into the helicopter contract between the United States (“Government”) and Boeing, does not operate 2a as a defense to damages sought under the FCA and (2) that the Government may recover damages for the loss of the helicopter. We AFFIRM the judgment of the district court. I. BACKGROUND In 1985 and 1989, the United States Army (“Army”) awarded multiyear procurement contracts totaling approxi- mately $2 billion to Boeing for the remanufacture of almost four hundred Boeing-manufactured CH-47A/B/C Chinook helicopters to the CH-47D configuration. As part of these contracts, Boeing was required to inspect and to ensure the quality of all of the parts used for the remanufacture, including those items purchased from its chosen subcon- tractors. The contracts provided warranty coverage for the helicopters from all defects in material and workmanship for the lesser of two-hundred flight hours or twenty-four months after acceptance. On August 28, 1990, the Army accepted delivery of a remanufactured CH-47D helicopter (“Aircraft 89-0165”). The next day, Boeing submitted a claim for payment to the Government, in the form of a $4.1 million invoice for Aircraft 89-0165. On January 11, 1991, after fifty-six flight hours, Aircraft 89-0165 suffered the failure of a defective flight- critical transmission gear' and crashed during a low-level contour flight over the Saudi Arabian desert as part of Operation Desert Shield. Aircraft 89-0165 and its contents were totally destroyed at a loss of at least $10 millio... The Army replaced Aircraft 89-0165 with a new CH-47D helicopter that cost almost $13 million. On May 22, 1995, Relator Brett Roby (“Roby”) filed a gui tam action under seal pursuant to 31 U.S.C. § 3730(b) on behalf of himself and the Government, alleging that Boeing ' A “flight critical part” is necessary for flight; its failure could cause the loss of the aircraft. J.A. at 1451 (Gray Dep.). 3a and its supplier, Speco Corp. (“Speco”), had violated the FCA by making false statements about the manufacture and sale of defective transmission gears to the Army via Boeing’s remanufactured CH-47D helicopters. Speco manufactured the gears that Boeing installed into the CH-47D helicopters before their delivery to the Army. On April 30, 1997, the Government intervened and filed an Amended Complaint against Boeing, which was unsealed on May 1, 1997. In its Answer, Boeing denied the allegations of FCA violations and raised a total of twelve affirmative defenses. Specifically, Boeing claimed: (1) that the HVIC, included by regulation in the helicopter contract, barred the damages sought under the FCA and (2) that consequential damages were not available under the FCA. On December 21, 1998, the Government filed a motion for partial summary judgment, challenging Boeing’s assertion of the HVIC as an affirmative defense. After hearing oral argu- ment, the district court granted the motion. United States ex rel. Roby v. Boeing Co., 73 F.Supp.2d 897, 912 (S.D.Ohio 1999) (“Roby I’). On February 5, 1999, Boeing filed a cross- motion for partial summary judgment as to the measure of damages. After hearing oral argument, the district court granted Boeing’s motion in part, with respect to the general issue of consequential damages, but denied the motion as it related to the Government’s damages in this case. United States ex rel. Roby v. Boeing Co., 79 F.Supp.2d 877, 895-96 (S.D.Ohio 1999) (“Roby IP’). On August 3, 2000, before trial, the parties reached a set- tlement under which Boeing made an immediate payment of $25 million. The settlement did not include the FCA claim arising from the Saudi crash; an additional payment of $15 million is contingent upon the outcome of this appeal. The 4a district court accepted the settlement and certified for interlocutory appeal the following questions of law: 1. Whether the [Government] can recover damages under the [FCA] for loss of a helicopter resulting from the failure of a defective flight-critical component part; and 2. Whether the [HVIC] contained in [FAR] § 52.246-24 and incorporated in the Boeing CH-47D helicopter contract operates as a defense to damages sought under the [FCA] for the loss of or damage to a helicopter resulting from the failure of a defective component part. J.A. at 214 (Order to Amend and Certify). On September 18, 2000, we granted Boeing’s petition for permission to appeal. We have no question before us concerning whether and to what extent Boeing’s conduct was fraudulent. Rather, the question is whether the HVIC precludes liability under the FCA, assuming that liability would otherwise exist. Il. ANALYSIS In an interlocutory appeal, we review a district court’s legal conclusions de novo. Northwestern Ohio Adm’rs, Inc. v. Walcher & Fox, Inc., 270 F.3d 1018, 1023 (6th Cir.2001). A. Mootness We first consider sua sponte the jurisdictional question whether the parties’ settlement of August 3, 2000, renders this case moot. Under Article III of the Constitution, our exercise of judicial power is limited to “actual cases or con- troversies.” Affholder, Inc. v. Preston Carroll Co., 866 F.2d 881, 885 (6th Cir.1989) (quoting Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984)) (internal quotation marks omitted). “Settlement of a claim before a final adjudication moots the claim and deprives the federal judiciary of jurisdiction over the claim.” /d. Agreements to limit recoverable damages, however, do not moot cases and therefore do not affect our jurisdiction. /d. Sa The parties’ settlement in this case is essentially the same as the agreement to liquidate damages that was reached in Nixon v. Fitzgerald, 457 U.S. 731, 102 S.Ct. 2690, 73 L.Ed.2d 349 (1982), where a discharged air force employee sought civil damages from the former president. /d. at 733, 102 S.Ct. 2690. Under the terms of the agreement, the employee accepted $142,000, with an additional amount of $28,000 contingent upon the Supreme Court’s ruling that the former president was not entitled to absolute immunity. /d. at 744, 102 S.Ct. 2690. Observing that “[t]he limited agreement between the parties left both petitioner and respondent with a considerable financial stake in the resolution of the question presented in this Court,” the Court concluded, “Given respondents’ continued active pursuit of monetary relief, this case remains definite and concrete, touching the legal relations of parties having adverse legal interests.” /d. (quotation omitted). In this case, Boeing has already paid the Government $25 million; it has agreed to pay an additional amount of $15 million contingent upon our rulings with respect to the scope of the FCA and the HVIC. Therefore, because the parties have “a considerable financial stake,” the case is not moot, and we will proceed to the merits of this appeal. B. The FCA and the HVIC The history of the FCA dates back to 1863, when it was enacted “with the principal goal of stopping the massive frauds perpetrated by large [private] contractors during the Civil War.” Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 781, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000) (quotation omitted). The FCA has since become the primary means by which the Government combats and deters fraud. H.R.Rep. No. 99-660, at 18 (1986). As amended in 1986, the FCA provides for a civil penalty from $5,000 to $10,000 and treble damages when an individual know- ingly acts to defraud the Government and does not “fully 6a cooperate[ ] with any Government investigation of such vio- lation.” 31 U.S.C. § 3729(a). The Supreme Court under- stands the current version of FCA damages to be “essentially punitive in nature.” Vt. Agency, 529 U.S. at 784, 120 S.Ct. 1858 (explaining that the Court had “suggested that damages under an earlier version of the FCA were remedial rather than punitive [because] that version of the statute imposed only double damages and a civil penalty of $2,000 per claim” (citations omitted)). Whereas the FCA allows the Government to recoup losses from fraud, the HVIC helps to manage the costs of liability insurance. Since 1984, the Federal Acquisition Regulations (“FAR”) have prescribed the insertion of the HVIC in certain government contracts to limit the liability of contractors “for loss of or damage to property of the Government (including the supplies delivered under th[e] contract) that (1) occurs after Government acceptance of the supplies delivered under th[e] contract and (2) results from any defects or deficiencies in the supplies.” FAR § 52.246-24(a).” The HVIC covers the loss of or damage to a high-value item, defined as “‘a contract end item that (a) has a high unit cost (normally exceeding $100,000 per unit) . . . and (b) is designated by the contract- ing officer as a high-value item.” Jd. § 46.802. Regarding such high-value items, the Government’s stated policy is to “act as a self-insurer” and to “relieve contractors of con- tractual liability for loss of or damage to those items.” /d. § 46.803. In short, the HVIC represents the Government’s assumption of the risk that a high-value item such as Aircraft 89-0165 may be lost or damaged after acceptance as a result ? From 1971 to 1984, when the FAR became effective, Armed Services Procurement Regulation (“ASPR”) 7-104.45 relieved contractors of such liability. See J.A. at 437 (Defense Procurement Circular 86 (“DPC 86”) at 4), 485-86. Ta of a defect or deficiency in the item. It does not necessarily imply that the Government has self-insured for the damages that result from violations of federal law. Boeing itself accepts the fact that, “[a]ssuming the govern- ment could prove a false claim, a contractor would remain liable for penalties and, if there be any, other appropriate FCA damages, notwithstanding the HVIC.” Appellant’s Br. at 31. However, relying on the text and history of the HVIC, Boeing argues that the HVIC prohibits the recovery of damages under any and all causes of action, when those damages result from the fraud of non-managerial personnel, meaning that there would be no appropriate FCA damages in this case. The issue before us is whether the HVIC’s limi- tation of contractor liability extends to cases brought under the FCA. Specifically, we must decide whether the Govern- ment has agreed to limit damages that would otherwise be recoverable under the FCA. In holding that the HVIC provides no defense to claims of FCA violations, the district court first noted that the FAR limit the application of the HVIC “to contractual remedies and not to claims premised under the [FCA]”; indeed, the HVIC and the FCA are silent with respect to each other. Roby I, 73 F.Supp.2d at 910. Therefore, the district court declined to find them inconsistent. Jd. Because FCA claims arise from the submission of a false or fraudulent claim, the district court concluded that the HVIC’s limitation on con- tractual liability did not limit a contractor’s liability under the FCA, finding no evidence in the record of any such intent on the Government’s part. Jd. at 910-11. Finally, the district court distinguished United States v. United States Cartridge Co., 198 F.2d 456 (8th Cir.1952), cert. denied, 345 U.S. 910, 73 S.Ct. 645, 97 L.Ed. 1345 (1953), which held that a lia- bility-limiting contract provision did limit the Government's 8a FCA claims, id. at 465, on the ground that the contract was made in the emergency situation preceding World War II, making the case unique. Roby J, 73 F.Supp.2d at 911-12. We agree with the district court that the HVIC does not bar the Government from suing Boeing under the FCA to recover damages for Aircraft 89-0165. We look first to the language of the FCA, which holds a defendant liable for a civil penalty “plus 3 times the amount of damages which the Government sustains because of the act of that person.” 31 U.S.C. § 3729(a). The allegedly fraudulent act in this case is Boe- ing’s “false[ ] represent[ation] that the helicopters conformed to contract requirements and fail[ure] to disclose their faulty manufacture to the United States Government.” J.A. at 87 (Am. Compl. at 4 3) Because of this false claim, the Gov- ernment sustained the loss of Aircraft 89-0165. Therefore, the Government argues that Boeing is liable under the FCA for treble damages as well as a civil penalty. At this point, Boeing would direct us to the HVIC, which limits contractor liability for high-value items in fairly broad terms: Except as provided in paragraphs (b) through (e) below, and notwithstanding any other provision of this contract, the Contractor shall not be liable for loss of or damage to property of the Government (including the supplies delivered under this contract) that (1) occurs after Gov- ernment acceptance of the supplies delivered under this contract and (2) results from any defects or deficiencies in the supplies. FAR § 52.246-24(a). The HVIC does not reference the FCA, but it does expressly refuse to limit a contractor’s liability * We note that Boeing “vigorously denies” any knowing submission of a false claim in this case. Reply Br. at 4. However, we must assume such a submission to address whether the HVIC precludes FCA damages when incorporated as a contract provision. 9a when “the Government’s acceptance of [a high-value item] results from willful misconduct or lack of good faith on the part of any of the Contractor’s managerial personnel.” FAR § 52.246-24(b).* The parties have stipulated that this excep- tion is not at issue in this case. Therefore, according to Boeing, the HVIC’s limitation of liability for loss or damage is absolute, precluding the Government from recovering any damages (as opposed to a civil penalty) under the FCA. We cannot dispose of the FCA claim so easily. Although the loss of Aircraft 89-0165 occurred after Government acceptance and resulted from the defective Speco gear, it was actually caused by Boeing’s initial misrepresentation that the *This exception originally included “fraud or gross negligence as amounts to fraud[ ] on the part of any personnel of the Contractor.” J.A. at 437 (ASPR 7-104.45(b)(ii) (1971)). The defense industry objected to this provision on the following grounds: Today’s exposure to possible infiltration by any number of dissident factions in our society serves to highlight the impossibility of any management to reasonably accept as an uninsured risk the results of any individual’s actions regardless of the extreme nature of such acts. Therefore, the introduction of this exception goes a long way toward negating the main purpose of DPC 86; that is, to remove from the Contractor the risk of potential liability for damage to Government property and eliminate from Governmen’ procurement the cost of Contractors’ liability insurance against such liability for damage to Government property. Unless the insurance exception is substantially modified and the exception regarding fraud of any personnel is removed, there is serious question whether DPC 86 implementation will have any real effect upon the cost of Contractor insurance included in the overall cost of the Government procurement program. J.A. at 464-65 (Letter from Council of Defense and Space Industry Associations, to Captain E.C. Chapman, Chairman, ASPR Committee 4-5 (Aug. 12, 1971)). The Department of Defense eventually accepted the recommendation to delete the provision. 10a helicopter conformed to contract requirements.’ This misrep- resentation, which triggered FCA liability, is the key to this case. Boeing argues from the “willful misconduct or lack of good faith” language in the managerial personnel provision, FAR § 52.246-24(b), that damages for FCA violations must be covered by the general limitation of liability. We do not agree. Were the HVIC a typical insurance policy, we would consider resolving the ambiguity in Boeing’s favor. Cf North Bank v. Cincinnati Ins. Cos., 125 F.3d 983, 986-87 (6th Cir.1997) (stating that Michigan law requires courts to con- strue ambiguous provisions and exclusionary clauses in insur- ance policies against the insurer). The aim of the HVIC, however, is to “reduc[e] Government procurement costs by limiting the contractor’s risk.” J.A. at 434 (DPC 86 at 1). The HVIC insures contractors only indirectly; it is, by its own terms, a self-insurance policy, which means that the Gov- ernment is both insurer and insured. Because nothing in the HVIC suggests that its limitation of contractor liability covers statutory violations, we hold that the district court did not err in concluding that the HVIC does not provide a defense to damages sought under the FCA. On one level, the dispute in this case is essentially the same as the one in United States Cartridge Co., where the defendant operated a Government-owned ammunition plant during World War II. United States Cartridge Co., 198 F.2d at 458. The Government alleged that the defendant had presented claims for payment that were false because it “failfed] to maintain a proper system of inspection and to produce the quality of ammunition called for by the contract.” Id. In its answer, the defendant denied any wrongdoing and * In other words, the loss would not have occurred as it did if Boeing had not warranted conformance, because the Government would have required the correction, repair, or replacement of the gear, which was under warranty. The HVIC itself emphasizes this obligation. FAR § 52.246-24(d)(1). lla argued that its liability was limited by contractual terms similar to the HVIC. /d. at 459-60. After a bench trial, the district court dismissed the case, noting that the limitation of liability was stated in “broad terms” and did not violate pub- lic policy. /d. at 460-63. The Eighth Circuit affirmed the dismissal. /d. at 465. Not surprisingly, the parties disagree as to whether and how the United States Cartridge Co. decision should affect our disposition of this case. We think that the district court correctly distinguished the two cases. See Roby I, 73 F.Supp.2d at 911-12 (emphasizing “the emergency situation” of war in United States Cartridge Co. and contrasting the “extensive governmental control of a prime contractor” in that case with the “limited governmental monitoring” in the case at bar). Moreover, we believe that the Government’s public policy argument in this case is stronger than it was in United States Cartridge Co., where the Eighth Cir- cuit concluded: If this contract were to be regarded as one creating the conventional relationship between the Government and a commercial corporate contractor not subject to Govern- ment supervision and control, for the supplying of goods or services, and if the provisions limiting liability were to be viewed merely as an attempt to relieve such a contractor from liability for its own fraud, the Govern- ment’s argument [that the limitation of liability was void] might perhaps be unanswerable. But this was not a conventional Government contract made under normal conditions; it was an unusual ar- rangement made to meet a crisis... . “The industrial units thus created are unique. * * * These plants embody a new and tripartite relationship among Govern- ment, labor, and management.” United States Cartridge Co., 198 F.2d at 464-65 (internal citation omitted). The contract in this case was a conven- Ome 2 em tee ere acts 12a tional one for the remanufacture of helicopters almost entirely during peacetime, and Boeing was not subject to Government supervision or control. These differences suggest that the limitation of liability in United States Cartridge Co. allocated risks in a way much more favorable to the defendant than does the HVIC. In short, we do not read the HVIC as an agreement by the Government to assume the risk of damages to high-value items that it sustains because of FCA violations. Boeing implores us to hold the Government to its con- tractual responsibilities and points us to the Fourth Circuit’s recent decision in United States v. Bankers Insurance Co., 245 F.3d 315 (4th Cir.2001), where the question on appeal was “whether the existence of an FCA claim precludes arbitration of a contract dispute involving the Government.” Id. at 318. The contract dispute concerned a federal agency and a private insurance company that had agreed to arbitrate any misunderstandings or disputes. Jd. at 317-18. The Government contended that the Attorney General was not bound by the arbitration agreement because (1) he had not been a party to the agreement, id. at 319, and (2) arbitration would impair his exclusive authority to enforce the FCA. Jd. at 324. Unpersuaded by these arguments, the Fourth Circuit ultimately required the Government to submit to nonbinding arbitration before litigating the FCA claim. /d. at 324-25. According to Boeing, the holding in Bankers Insurance that the Government must satisfy its contractual obligations supports the proposition in this case that the Government may comply with the HVIC only by refraining from seeking damages under the FCA. That the Government is bound by the contracts that its authorized officials sign is incon- trovertible. However, we cannot as readily agree with the inference that Boeing draws from Bankers Insurance for the resolution of this case. The Fourth Circuit recognized that FCA claims are “premised on a unique statutory right” and explicitly noted that “the statutory authority of the Attorney 13a General [to enforce the FCA would] not [be] comprc.nised by” making the Government honor its previous agreement to arbitrate. Bankers Ins., 245 F.3d at 325. In other words, the contract in Bankers Insurance merely deferred the litigation of the FCA claim until the nonbinding arbitration process had been completed. In this case, however, Boeing’s interpretation of the HVIC would absolutely foreclose the Government from recouping anything more than a $10,000 civil penalty for damages sustained because of a false claim for a high-value item, when the damages sustained could be far greater than the general $100,000 threshold for such items. Given Congress’s explicit recognition while amending the FCA “that a large number of fraud cases and many of the larger-dollar cases arise out of Department of Defense contracts,’ H.R.Rep. No: 99-660, at 20,° it strikes us as incongruous that the HVIC would relieve contractors for high-value items from the FCA’s dam- ages provision. After all, the motivating purpose of the FCA is to combat and to deter fraud, which would not be served in the context of defense contracts by the civil penalty alone. In its brief, Boeing expounds at length on the negative implications, both fiscal and otherwise, of holding military contractors liable under the FCA for damages to high-value items. We agree with the Government and Roby that we should leave any revision of the FCA or the HVIC to Congress. In the case before us, Boeing was contractually °See also S.REP. No. 99-345, at 2-3 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5267 (“In 1985, the Department of Defense Inspector General, Joseph Sherick, testified that 45 of the 100 largest defense con- tractors, including 9 of the top 10, were under investigation for multiple fraud offenses. Additionally, the Justice Department has reported that in the last year, four of the largest defense contractors, General Electric, GTE, Rockwell and Gould, have been convicted of criminal offenses while another, General Dynamics, has been indicted and awaits trial.” (citations omitted)). l4a required to ensure the quality of the parts used for the remanufacture of the Army’s helicopters; its failure to do so resulted in the Government’s acceptance and use of a helicopter that was not flight-ready and the subsequent loss of the helicopter. The HVIC does not foreclose the FCA as a means for the Government to recover damages for the loss of Aircraft 89-0165. C. FCA Damages The crux of this case is the appropriate measure of damages under the FCA, which simply provides for “3 times the amount of damages which the Government sustains because of the act of th[e] person” who submitted the false or fraudulent claim. 31 U.S.C. § 3729(a). We have previously observed that FCA damages “typically are liberally calculated to ensure that they ‘afford the government complete indem- nity for the injuries done it.’” United States ex rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296, 304 (6th Cir.1998) (quoting United States ex rel. Marcus v. Hess, 317 U.S. 537, 549, 63 S.Ct. 379, 87 L.Ed. 443 (1943)). “[T]he government is entitled to full damages where it proves it received no value at all.” Jd. In Marcus, the Supreme Court indicated that “restitution to the government of money taken from it by fraud” was the motivating purpose of the FCA; therefore, “the device of [then-] double damages plus a specific sum was chosen to make sure that the government would be made completely whole.” Marcus, 317 U.S. at 551-52, 63 S.Ct. 379. Three decades later, in United States v. Bornstein, 423 U.S. 303, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976), the Supreme Court understood the baseline to be “the Government’s actual damages,” measured as “equal to the difference between the market value of the [goods] it received and retained and the market value that the [goods] would have had if they had been of the specified quality.” /d. at 316 & n. 13., 96 S.Ct. 523 The Bornstein Court favored this formula because it lSa “maximizes the deterrent impact of the [then-] double- damages provision and fixes the relative rights and liabilities of the respective parties with maximum precision.” /d. at 317, 96 S.Ct. 523. In this case, the district court held that the Government could recover damages under the FCA that were “the direct, proximate, and foreseeable result of the claims submitted by” Boeing for Aircraft 89-0165; Boeing had argued that its lia- bility at most was limited to “the price of a fully-conforming transmission gear.” Roby II, 79 F.Supp.2d at 895. On appeal, Boeing continues to maintain that “the proper measure of direct FCA damages is the amount wrongfully paid on the claim,” Reply Br. at 23, or the value of the defective Speco gear. However, Boeing now concedes that damages under the FCA could equal—but never exceed—the amount of the claim, which in this case would be the approximately $4.1 million value of Boeing’s contract to remanufacture Aircraft 89-0165. Negotiation strategy aside, we are at a complete loss as to how Boeing can understand “the amount wrongfully paid” to be limited to “the portion of the contract price allocated to the defective gear.” Reply Br. at 21. According to our reading of the contract and the subsequent invoice, Boeing billed the Government for the remanufactured helicopters as units, not as assemblages of assorted parts. Cf Bornstein, 423 U.S. at 307, 96 S.Ct. 523 (invoices for radio kits that contained falsely marked electron tubes “included claims for payment for the falsely marked tubes”). The fact that every com- ponent but one conformed to contract requirements is not legally significant when the defective gear was “flight criti- cal” and thus necessary for flight. Because the Speco gear was defective, Aircraft 89-0165 was defective, making Boeing’s entire claim for payment false for the purposes of the FCA. l6a This understanding of Boeing’s FCA violation informs our analysis of how to calculate damages under the FCA. Under the “diminished value” or “benefit of the bargain” test, which Boeing cites as controlling, we subtract the market value of what the Government received from what it was promised.’ ” See generally JOHN T. BOESE, CIVIL FALSE CLAIMS AND QUI TAM ACTIONS § 3.01[D][1], at 3-34 to 3-35 (2d ed. Supp.2002). The facts of Bornstein, where the Supreme Court articulated this rule, are similar to those of this case and deserve some attention. Bornstein involved a Government contract for radio kits, which were to contain electron tubes of a certain quality. Bornstein, 423 U.S. at 307, 96 S.Ct. 523. The subcontractor who supplied these tubes sent tubes that were falsely marked as meeting the Government’s specifications. /d. The contractor then incorporated the falsely marked tubes into the radio kits and shipped them to the Government. /d. The contractor’s invoices were thus false because they “included claims for payment for the falsely marked tubes that had been supplied” by the subcontractor. /d. After recovering damages for the tubes from the contractor, presumably by settlement, the Government brought an FCA action against the subcontractor. /d. at 307- 08, 96 S.Ct. 523. In holding “that the Government’s damages should be doubled [as the FCA then provided] before any compensatory payments are deducted,” id. at 314, 96 S.Ct. 523, the Bornstein Court stated that those damages were “equal to the difference between the market value of the tubes it received and retained and the market value that the tubes would have had if they had been of the specified quality.” /d. at 317 n. 13, 96 S.Ct. 523. We recount these facts in detail because the similarity between Born- stein and this case might prompt the all-too-easy substitution of “gear” for “tubes” in the equation quoted above. In both cases, the claim for pay- ment was false because of a defective part that a subcontractor had supplied. However, as the district court correctly noted, “Bornstein was concerned only with the issue of damages and penalties against a sub- contractor who causes the prime contractor to submit false claims.” Roby II, 79 F.Supp.2d at 893 n. 47. The defendant in this FCA action, of course, is Boeing, not Speco. We cannot know why the Government settled with the contractor in Bornstein for only the cost of the falsely marked tubes when it had contracted and paid for radio kits—perhaps the tubes did not affect the reliability of the radios. See Bornstein, 423 U.S. at 318-20, 96 S.Ct. 523 (Rehnquist, J., concurring in part and dissenting in part) (describing the subcontractor’s scheme). In this case, however, the 17a That the contract in this case was for the remanufacture rather than the sale of a helicopter gives us some pause, but ultimately does not affect the issue before us.* We will therefore frame the following discussion in terms of the market value of remanufactured helicopters. Under Compton, the market value of Aircraft 89-0165 as delivered was zero. Boeing, of course, would disagree, and we are aware of the fact that the Army did get fifty-six hours of flight time from the helicopter, when the warranty was good for two-hundred flight hours. However, as we con- cluded in Compton: [A] setoff based on value purportedly received would create a perverse incentive system in which govern- ment contractors could endanger the lives of American soldiers by providing substandard materiel, and the Army would be deterred from correcting the danger because it would be forced to bear the cost of any use it received from the substandard goods before their defects were discovered. Compton, 142 F.3d at 305 n. 8. We believe that this policy argument, which was compelling with respect to untested jeep brake-shoe kits, id. at 297-98, has even more force in the context of this case. Compton is not as helpful in determining the market value of Aircraft 89-0165 as promised. In Compton, we held that the Government could recover the contract price because Speco gear was not simply of lesser quality than specified; it was a defective flight-critical part, which made the loss of Aircraft 89-0165 inevitable. * Again, we note that the question certified for appeal is “[w]hether the [Government] can recover damages under the [FCA] for loss of a heli- copter resulting from the failure of a defective flight-critical compon- ent part.” J.A. at 214. The answer to this question does not depend on whether the underlying contract was for remanufacture or sale. 18a damages were the same whether we applied the diminished- value test, as the defendant urged, or the Uniform Com- mercial Code’s rejection provision. /d. at 305. However, contrary to Boeing’s reading of the case, Compton does not necessarily signify that the recovery of damages in FCA cases is “limited to the contract price originally paid.” Reply Br. at 26. Although the Government apparently did not claim that its full or actual damages were more than the contract price in Compton, it does so in this case. Boeing characterizes the Government’s claim as one for replacement costs, which it argues are consequential damages and thus unrecoverable under the FCA. We think that this characterization confuses the issue. Under the diminished- value test that Boeing itself favors, actual damages depend on “market value.” Bornstein, 423 U.S. at 317 n. 13, 96 S.Ct. 523. Boeing conflates market value and contract price, but the concepts are clearly distinct. Cf. U.C.C. § 2-713 (2001) (“[T]he measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price ...”). In this case, the Government contracted for Aircraft 89-0165 to be remanufactured to specific standards. The helicopter as received by the Government did not meet those specifications. Therefore, the Government’s damages equal the difference between the market value of Aircraft 89- 0165 as received (zero) and as promised. We do not presume to estimate the market value of a remanufactured helicopter. For our present purposes, we answer the question certified for interlocutory appeal in the affirmative—that is, the Govern- ment may recover damages under the FCA for the loss of a helicopter that results from the failure of a defective flight- critical component part. We note that these damages do not represent replacement costs.” Because the Government did ° The Federal Circuit has observed that the diminished-value test is “the normal measure of damages” in FCA cases but held that “[i]n the 19a not contract for a new helicopter, it may not recover the roughly $13 million value of the helicopter bought to replace the destroyed Aircraft 89-0165. However, it may recover the benefit of its bargain with Boeing, which would be the value that Aircraft 89-0165 would have had if it had been of the specified quality. III. CONCLUSION For the foregoing reasons, we AFFIRM the judgment of the district court. unusual case in which actual loss in value cannot be ascertained, the injured party may recover the replacement cost, but only if that cost is not clearly disproportionate to the probable loss in value caused by the defects in question.” Commercial Contractors, Inc. v. United States, 154 F.3d 1357, 1372-73 (Fed.Cir.1998). “The cost of remedying defects is not regarded as disproportionate if the defects significantly affect the integrity of a structure being built. In that setting, the injured party is entitled to recover the cost of remedying the defects despite the fact that the cost may be very high.” /d. at 1372. So instructed, we observe that if the actual loss in Aircraft 89-0165’s value could not be ascertained, then the Government would be entitled under Commercial Contractors to recover the very high cost of replacing the downed helicopter, because the defect concerned a flight-critical gear and significantly affected the structural integrity of the helicopter. 20a BOGGS, Circuit Judge, dissenting. I respectfully dissent from the court’s restrictive reading of the HVIC and its resultant holding that the Government can sue Boeing under the FCA to recover damages for Aircraft 89-0165. As the court admits, the HVIC “limits contractor liability for high-value items in fairly broad terms.” Majority Op. at 643 (emphasis added). The plain language of the HVIC states that, with limited exceptions that the parties agree are not applicable to the present case, “the Contractor shall not be liable for loss of or damage to property of the Government . that (1) occurs after Government acceptance of the supplies delivered under this contract and (2) results from any defects or deficiencies in the supplies.” 48 C.F.R. § 52.246- 24. Put most simply, this case is about the Government trying to do exactly what the plain and obvious wording of its contractual term says it will not do: recover from “the Contractor” for the “loss of or damage to property of the Government.” The court’s holding—that the Government can seek under the FCA exactly what it has contracted through the HVIC not to—flows in large part from the inherent tension the court sees between the FCA and the HVIC. The court states well the history and purpose of each—the FCA was adopted to combat fraud perpetrated on the Government by its contrac- tors, and the HVIC is included as a self-insurance provision in certain Government procurement contracts to limit the insurance that contractors must acquire (and the resultant costs those contractors pass on to the Government). Majority Op. at 641-42. The court then explains that if the HVIC is given a natural reading, it will conflict with the goals of the FCA. Majority Op. at 645.' ' | note that the court mentions in passing the district court’s reading of the HVIC, which would alleviate any perceived tension between the 2la However, the court unnecessarily complicates the case. Contrary to the court’s reading, the FCA and HVIC can easily be read in harmony. The HVIC does not overwrite or preempt the FCA by relieving contractors of liability for fraud. The FCA is still applicable to the contractors; the only difference made by the HVIC is that the Government has agreed that it will not hold the contractors liable under any theory for the value of the helicopter. Accordingly, the Government can sue the contractors under the FCA and seek a finding of liability for fraud; the Government merely can not seek damages for the value of the equipment. The other penalties under the FCA are still applicable, and if the Government feels that it has been defrauded, it may debar HVIC and the FCA by limiting the HVIC’s effect to only contractual remedies; in this reading, the HVIC would be completely inapplicable to the Government’s statutory remedy under the FCA. Majority Op. at 642 (citing Roby /, 73 F.Supp.2d at 910). To the extent that the court relies on this distinction, it appears incorrect. First, while the word contractual is used to modify the remedies limited by the HVIC in its enabling regu- lation, that modifier does not appear in the form contract language set out in the regulations, 48 C.F.R. § 52.246-24, or in the parties’ contract (which incorporated the form language). Therefore, the clause as it appears in the parties’ contract facially covers all remedies. Second, the word contractual as used in the enabling regulation for the HVIC is open to interpretation. In addition to the definition the district court gave it, that its protection only applies to contract remedies the Government might have against Boeing, the use of the word contractual might merely be shorthand for any remedies that come out of the relationship embodied in the contract. Indeed this broader reading is more in line with the history of the HVIC. For example, in the case that prompted the Government to turn its unwritten practice of self-insurance into a formal rule, Australia v. Lockheed Aircraft Corp. & Menasco Mfg. Co., No. 69-1623-WPG (C.D.Cal. Jan. 10, 1972), the practice was discussed as a defense to contract, products liability, and negligence claims. Obviously neither negligence nor products liability claims are contract remedies in the narrow sense; they do not arise from a contract, just as a fraud claim does not. However, they can all arise out of a relationship between the parties that is based in a contract. 22a Boeing from Government contracts. In short, the better reading of the HVIC is as an assumption of risk clause; the Government has contractually agreed to assume the risk of the loss of the helicopter, and while legal means remain open to the Government against Boeing (including that pursuant to the FCA), the Government can not seek recompense for the value of the equipment.” There is support in both the wording and purpose of the HVIC for enforcing a natural reading of the contractual clause—that the Government has contracted away its right to seek property damages from suppliers of high-value items. First, the wording of the HVIC supports the proposition that it was intended in the usual case to protect contractors from Government actions utilizing a fraud theory. Pursuant to it, contractors are not liable for any damages for the loss of a high-value item caused by a product defect, unless one of the few listed exceptions applies. As the court points out, one of those exceptions is for “willful misconduct or lack of good faith” on the part of managerial personnel. Majority Op. at 643 (citing FAR § 52.246-24(b)). Though not using the word “fraud,” willful misconduct and a lack of good faith fairly ? Contrary to the court’s contention, the argument that the Government can contract away part of its rights under the FCA is supported by the recent Fourth Circuit decision in United States v. Bankers Insurance Co., 245 F.3d 315 (4th Cir.2001). In that case, the Government was held to an arbitration agreement contained in a contract it had signed when the Government sought instead to bring an FCA action in court against the other party to the contract. The court tries to distinguish Bankers Insur- ance by noting that the contract at issue in that case permitted the Government the unfettered right to sue under the FCA after it engaged in the required arbitration. Majority Op. at 645. Nevertheless, the reasoning of Bankers Insurance still applies to the case at hand: “[T]he Government has no special right to ignore its contract responsibilities. The Govern- ment should comply with its contract obligations, and it cannot avoid them merely by invoking a statutory civil claim, such as one contemplated under the FCA.” Bankers Insurance, 245 F.3d at 324. 23a describe fraud. Therefore, the HVIC expressly exempts from protection losses due to fraud on the part of managerial personnel. The negative pregnant, therefore, would be that the HVIC does protect contractors from losses due to non- managerial fraud (which the parties have stipulated to be the extent of the fraud, if any, in the present case). Second, the purpose of the clause supports the proposition that it was intended to provide protection no matter the legal theory. In order to explain why, however, I provide a slightly broader history of the HVIC. As the district court in this case explained, the clause represents a long-standing Department of Defense (DOD) practice of self-insuring for damage to high-value items. See Roby I, 73 F.Supp.2d at 908-09. At first it was just a practice, under which the DOD would not hold manufacturers liable for the loss of this type of equipment, regardless of whether the DOD found any fault, negligence, or breach of warranty to have occurred on the part of the manufacturer. /d. at 909. Then, in the 1960s, the landing gear on an airplane purchased by the United States military and resold to the Australian Navy failed, resulting in the destruction of the plane. The Australian government sued the manufacturer, seeking tort, contract, and products liability damages. /bid. Referring to the long-standing practice of the Government self-insuring against the loss of military equipment, a California district court found that the United States Navy could have been estopped from pursuing any claim based on the loss of the aircraft, because the airplane industry was aware of and relied upon this practice. See Australia v. Lockheed Aircraft Corp. & Menasco Mfg. Co., No. 69-1623-WPG (C.D.Cal. Jan. 10, 1972). Specifically, the court found that the self-insurance practice had two ceniral purposes: (1) to encourage manufac- turers not to obtain liability insurance, the cost of which would be passed on to the Government; and (2) to encourage the manufacturers to cooperate fully in investigating the cause of equipment failures. /d. at 2-3. 24a As the district court in this case pointed out, around this time, the United States Commission on Government Pro- curement issued a report stating similarly, that defense contractors had long “[u}nderstood that the general practice of the government in military contracting was to accept the risk for loss or damage. . . .” Roby J, 73 F.Supp.2d at 909. Still, the Menasco case shook the faith of Government contractors in the protection offered by the unwritten policy. In response, in 1971, the DOD issued Defense Procurement Circular 86, which, as the court notes, put in writing this limited liability. Majority Op. at 642 n. 2. The original 1971 version of the DOD’s self-insurance policy stated that the clause did not apply “when the defects or deficiencies in such supplies . . . resulted from fraud or gross negligence as amounts to fraud, on the part of any personnel of the Contractor.” DPC 86 at 4 (emphasis added). However, as the court notes, defense industry representatives warned that this would defeat the purpose of the clause, and when the clause was reissued in 1974, the phrase had been removed. Majority Op. at 643 n. 4. It was replaced with a more limited exception, which—much like the one in the current HVIC—excluded only “willful misconduct or lack of good faith on the part of any of the Contractor’s directors or officers, . . . managers, superintendents, or other equivalent representatives. ...”” ASPR 7-104.45 (July 1, 1974). Importantly, the Government made this change expressly recognizing its effect. In a memorandum discussing pro- posed revisions to the HVIC, the Armed Services Procure- ment Regulations Committee, which promulgated the HVIC, explained that the removal of the original fraud provision would “eliminate contractor’s [sic] responsibility for damage to Government Property resulting from defective items and caused by the fraud or gross negligence as amounts to fraud of any personnel of the contractor.” J.A. at 652 (January 14, 1972). In 1984, the HVIC regulation relevant to this case 25a became effective and provides substantially the same pro- tection to military contractors providing high-value items. See 48 C.F.R. § 52.246-24. From its history, it is clear that the DOD’s self-insurance policy was intended to preclude liability for the loss of certain Government equipment—even when such loss was the result of non-managerial fraud—so that contractors would not purchase liability insurance, which otherwise would be costly and would be a cost passed on to the Government. The plain language of the HVIC at issue in the present case conforms to that purpose. However, the court’s decision today does not; under it, contractors will have to insure against potential FCA liability for treble damages for the loss of high-value items resulting from actions that might be held to be fraudulent on the part of any personnel. Presumably, this cost will be passed on to the Government. In sum, the court today holds that the HVIC does not apply in a situation wherein its plain terms and historical purpose seem to suggest it does apply—a contractor being held liable to reimburse the Government for the loss of a high-value item. Now, the Government argues that this case is not about recovering the amount lost when the helicopter was destroyed, but is instead about holding Boeing responsible for fraud. However, if the Government were really only con- cerned about fraud, it could seek the other penalties pos- sible under the FCA or debar Boeing from participation in future Government contracts. Instead, the Government seeks trebled payment for the helicopter. As explained above, if this court had held the HVIC applicable to Government actions for reimbursement under the FCA, it would not have been overriding or preempting the FCA. It would, instead, merely have been upholding the obvious coverage of a standard assumption of risk clause, under which the Government agreed not to exercise certain rights it would otherwise have in exchange for a benefit. 26a This court would not have been holding that the FCA can not be relied upon by the Government; it would merely have been saying that the Government, in accordance with the express language and historical purpose of the HVIC, can not seek compensation for the loss of the helicopter under any theory, including under the FCA. Because the court does not so hold, I must respectfully dissent. 27a APPENDIX B UNITED STATES DISTRICT COURT, S.D. OHIO, WESTERN DIVISION. No. C-1-95-375. UNITED STATES OF AMERICA ex rel. BRETT Rosy, Plaintiff, V. THE BOEING COMPANY, Defendant. Dec. 30, 1999. ORDER SPIEGEL, Senior District Judge. This matter is before the Court on Defendant’s Cross- Motion for Partial Summary Judgment as to the Measure of Damages (doc. 340); Government’s Response (doc. 366); Relator’s Response and Cross-Motion for Summary Judgment as to the Measure of Damages (doc. 367); Defendant’s Reply (doc. 401); Aerospace Industries of America, Inc’s Motion in Support of Defendant’s Cross- Motion as to the Measure of Damages (doc. 402); Relator’s Reply (doc. 432); and Defendant’s Motion Requesting the Court to Rule on Defendant’s Cross-Motion for Partial Summary Judgment as to the Measure of Damages (doc. 556). BACKGROUND On May 22, 1995, Relator Brett Roby (hereinafter, “Relator”) filed this action under seal pursuant to Title 31 4 28a U.S.C. § 3730(b) on behalf of himself and the United States Government (hereinafter, “the Government” or “the United States”) in the United States District Court for the Southern District of Ohio (doc. 2). Relator alleges that The Boeing Company (hereinafter, “Boeing” or “Defendant”) and its supplier, The Speco Corporation (hereinafter, “Speco”),' violated the False Claims Act, Title 31 U.S.C. § 3729, et seq., by manufacturing and selling defective transmission gears to the United States via Boeing’s CH [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1345%3A1. Public record. Not legal advice.