COURT OF APPEAL LIMITS DAMAGES IN FALSE CLAIMS ACT LITIGATION

In Fassberg Construction Company v. Housing Authority of the City of Los Angeles (Case No. B181989, decided May 24, 2007), the Court of Appeal has reversed a $3.9 million judgment against government contractor Fassberg Construction Company. In doing so, the court provided clear definitions for some of the False Claims Act's basic terms, and clarified the manner in which penalties for false claims may be calculated.

Fassberg sued the Housing Authority for breach of a contract for the construction of 25 residential buildings. The Housing Authority cross-complained for violation of the False Claims Act (FCA) and related causes of action. A jury returned a verdict for the Housing Authority. It found that Fassberg had submitted 2,893 supposedly "false claims," for which it awarded the Housing Authority $455,000 in damages. Pursuant to the Act, these damages were trebled. In addition, the court imposed FCA penalties in the amount of $1,446,500: $500 for each one of the 2,983 "false claims" found by the jury, as well as additional damages for breach of contract.

The Court of Appeal held the record did not support the jury's conclusion that Fassberg submitted 2,983 false claims. A "claim" under the California False Claims Act constitutes a "request or demand for money . . . ." (Gov. Code, § 12650, subd. (b)(1).) The court ruled that Fassberg's weekly payroll reports did not constitute "request[s] or demand[s] for money" and therefore could not give rise to penalties. Similarly, Fassberg's change order requests were requests to modify the contract, not demands for immediate payment. Because the contractor submitted only 49 requests for payment, it could be liable at most for no more than 49 false claims.

The court also ruled the Housing Authority suffered no damages as a result of Fassberg's alleged misstatements concerning the wage rates it was paying its employees. The alleged misstatements did not increase the cost of the agency's fixed price contract, and therefore did not result in any damages.

Finally, the court ruled that, because the award of treble damages and civil penalties under the False Claims Act serves primarily a punitive purpose, an award of punitive damages in such cases will generally be duplicative and unwarranted.

Click here to read the Court of Appeal's May 24 opinion certified for partial publication. Horvitz & Levy LLP represented Fassberg Construction Company on appeal. For further information, contact Fred Cohen or Daniel Gonzalez at (818) 995-0800 or send an e-mail to Fred at fcohen@horvitzlevy.com or Danny at dgonzalez@horvitzlevy.com.

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