Watching for Government Overreach.

Author:Davis, Erin R.
Position:Ethics Corner

The Department of Justice regularly issues press releases whenever it wins a judgment or settles a False Claims Act case for multimillion-dollar amounts. These headlines make Americans feel good, that their Justice Department is working and protecting the government from paying for something that it did not receive. There are times, however, when the department overreaches.

The Circle C Construction saga is a case in point.

The act imposes liability on "anyone who knowingly presents... a false or fraudulent claim" to the government for payment. Liability can attach to subcontractors as well as to prime contractors--whoever knowingly submitted the false or fraudulent false claim.

The Circle C saga involved a false claims case pressed against a family-owned general contractor for 10 years for the sole reason that one of Circle C's subcontractors, Phase Tech, an electrical contractor, paid two of its electricians $9,900 less than it should have to satisfy the Davis-Bacon Act, the statute that sets the amounts that contractors should pay construction trade workers.

A complaint was filed in January 2007, and the Justice Department intervened in October 2007, seeking settlement on the wages and trebling of actual damages.

In June 2009, Phase Tech admitted its mistake, paying $15,000 to the government to settle. Unfortunately, getting restitution for these electricians did not stop Justice, nor did it end Circle C's nightmare.

Circle C had performed a contract for the Army to build 42 warehouses in Kentucky and Tennessee for approximately $20 million. The project took seven years to complete. The warehouses were completed, accepted and were in continual use by the Army.

Nevertheless, the Justice Department claimed damages against Circle C in the amount of $553,807--the amount of the total subcontract--trebled to equal $1.66 million, as allowed under the False Claims Act. The department's theory was that Phase Tech's failure to pay these two electricians tainted the value of its entire effort.

In March 2010, the government was granted summary judgment on the settled wage claim and was awarded $553,807 in damages. The district court accepted the department's damages theory.

Circle C appealed to the 6th Circuit Court of Appeals a total of three times: twice on the merits, and a third time when the lower court denied its motion to have Justice pay Circle C's legal fees and costs.

Each time, the 6th Circuit agreed with Circle C and sent the case back...

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