United States v. Aerodex, Inc., and Hermann Waker, Jr.
469 F.2d 1003 (1973)
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Rule of Law:
Under the Federal False Claims Act, damages subject to the statutory doubling provision are limited to the amount the government paid due to the false claim itself and do not include consequential damages that result from the delivery or use of the defective goods.
Facts:
- On October 6, 1962, Aerodex, Inc. entered into a contract with the U.S. Navy Aviation Supply Office to sell 300 new, unused master rod bearings with Curtiss-Wright part number (P/N) 171815.
- Frank J. Crawford was the vice president in charge of the Aerodex division handling the sale, and Raymond Tonks was the company's president.
- Instead of providing the specified parts, Aerodex acquired bearings with a different part number (P/N 117971), which were made of a softer, lower-carbon steel.
- Aerodex employees reworked the P/N 117971 bearings, replacing a metallic overlay and re-stamping them with the P/N 171815 part number.
- The reworked and mislabeled bearings were visually indistinguishable from new P/N 171815 bearings.
- Aerodex delivered the non-conforming bearings to the Navy and submitted three invoices for payment, representing the parts as P/N 171815.
- The Navy accepted the bearings without conducting the 100% final inspection required by the contract and installed a number of them in aircraft engines.
- After discovering the parts were incorrect, the Navy incurred significant costs to remove the non-conforming bearings from the engines and replace them.
Procedural Posture:
- The United States government sued Aerodex, Inc., Frank J. Crawford, and Raymond Tonks in a United States District Court, alleging violations of the Federal False Claims Act.
- The district court found the defendants liable for submitting false claims.
- The district court awarded the government $381,838.36, which included double the contract price, double the consequential 'retrofit' costs, and statutory penalties for three false invoices.
- The district court also found that Aerodex breached its warranty but included the damages in the FCA award.
- Aerodex, Crawford, and Tonks (appellants) appealed the judgment to the U.S. Court of Appeals for the Fifth Circuit.
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Issue:
Under the Federal False Claims Act, are consequential damages, such as the costs incurred to remove and replace non-conforming goods, included in the 'amount of damages' that is subject to statutory doubling?
Opinions:
Majority - Roney, Circuit Judge
No, consequential damages are not included in the damages calculation under the False Claims Act. The Act's double-damage provision applies only to damages sustained by reason of the 'act' of submitting the false claim, which is measured by the amount wrongfully paid to satisfy that claim. The court reasoned that the consequential damages—the $160,919.18 'retrofit' cost—were caused by the delivery and installation of the defective bearings, not by the submission of the false invoices. Therefore, only the contract price paid by the government ($27,000) was the direct result of the false claim. The proper recovery under the Act is double that amount ($54,000), plus the statutory penalties ($6,000), for a total of $60,000. However, the court found that the government could recover the consequential damages separately under a breach of express warranty theory. The court held that the government's failure to inspect the parts did not absolve Aerodex of liability because a buyer is entitled to rely on a seller's express warranty. The court affirmed the finding of liability against Crawford due to his direct involvement and attempts to mislead investigators but reversed the finding against Tonks, concluding the evidence of his knowledge was insufficient.
Analysis:
This decision significantly clarifies the scope of damages recoverable under the False Claims Act by distinguishing between direct and consequential damages. It establishes that the FCA's punitive doubling provision is tied directly to the financial loss from the fraudulent billing itself, not from the downstream consequences of the contractor's underlying poor performance. This forces the government to plead separate causes of action, such as breach of warranty, to recover consequential losses, thereby compartmentalizing remedies in government contract fraud cases. The ruling prevents a windfall recovery for the government under the FCA and requires a more precise causal link between the false claim and the damages sought to be doubled.
