On January 20, 2023, the U.S. District Court for the District of Columbia entered a judgment in the amount of $1,679,450.16 in favor of the U.S. (the government ) in a False Claims Act (FCA) litigation against Gen Digital, Inc. (formerly known as Symantec Corporation and NortonLifeLock Inc.). Although any adverse judgment in an FCA matter might be seen as a disappointment, the government requested a total judgment in the case of over $1 Billion. Accordingly, the defendants could treat a judgment for less than two-thousandths of the government’s request to be a substantial success. However, the government moved to amend the judgment, claiming the Court miscalculated the damages. Almost a year later, the Court granted the motion and increased the judgment in favor of the government to approximately $53 Million, a shocking turn of events that left the government contracting community wondering how such a drastic adjustment was even possible. Although the Court’s increase in the damages amount raised eyebrows, government contractors should be aware of important takeaways to help avoid a similar decision impacting their FCA cases.
Background
In a qui tam action initiated in 2012, the government alleged that Gen Digital violated the FCA when it “did not appropriately disclose to” the General Services Administration (GSA), in connection with its Master Award Schedule (MAS), certain “non-standard discounts and rebates offered to comparator customers, undermining GSA’s ability to negotiate favorable pricing.” After a four-week bench trial, the Court made a number of findings related to Gen Digital’s FCA liability, principal among them: (a) Gen Digital violated the FCA by failing to inform GSA of certain transactions that would trigger the price reduction clause applicable to Gen Digital’s GSA Schedule Contract and (b) Gen Digital made false Commercial Sales Practice (CSP) disclosures when it failed to disclose non-published discounts applicable to Symantec and Veritas products and various Symantec rebate programs.
In calculating damages, the Court addressed two theories of recovery. First, the Court considered “discount damages,” which it described as “the amount less GSA would have paid if Symantec had not made false CSP disclosures concerning discounts offered to comparator customers, had not made false implied certifications of compliance with the CSP and PRC requirements concerning discounts when submitting claims throughout the life of the contract, and had not failed to offer the price reductions to which GSA was entitled under the PRC during the life of the contract.” Second, the Court considered “rebate damages,” or “the amount less GSA would have paid if Symantec had not made false CSP disclosures concerning its rebate programs.” The Court found inadequate evidence and expert testimony to support an award for discount damages. However, the Court ruled that there was sufficient record evidence to calculate rebate damages. It determined that 3% was a “‘conservative estimate that is adequately supported by the record’ of the rebate that GSA would have received if Symantec had provided truthful information about its rebate programs.” The Court then applied the 3% rebate to an “exceptionally conservative” estimate of the discount the government would have received, after “repurposing a set of assumptions employed by Symantec’s damages expert,” to reach the conclusion that the government suffered $356,316.72 in damages. Under the FCA, that amount was tripled to $1,068,950.16, and mandatory penalties were added under state and federal law to reach the original approximately $1.6 Million judgment.
Resulting Damages
Following the Court’s decision, the government moved to amend the judgment, arguing that the Court miscalculated the amount of damages and penalties. Although the government urged the Court to reconsider all its’ calculations, the Court only found errors in the rebate damages and civil penalties.
For rebate damages, the government contended, and the Court ultimately agreed, that the 3% rebate should be applied not to the estimated discount that the government would have received, but to the total sales prices the government paid on the contract. The government suggested the following example:
[I]f the Court purchases a smartphone costing $100.00 and receives a 3% rebate on that product, the Court’s rebate equals $3.00 (3% of $100). If the Court purchases the same smartphone a week later and it has been marked down to $90.00 with a 3% rebate, the Court’s rebate on that second purchase would be $2.70 (3% of $90). The Court’s rebate would not equal 3% of the $10.00 mark-down or discount (i.e., 30 cents).
The Court expressly acknowledged its error in light of the government’s example. It noted that it interpreted the government’s original request for judgment as 3% of its total damages, which the Court understood to be the difference between what the government would pay if the rebates were applied and what the government actually paid. However, upon reflection, the Court understood the government to be requesting 3% of the amounts that the government should have paid in total.
The Court also acknowledged that its attempt to create an estimated total for damages itself was an error. A rebate applied to the total sales would accurately reflect the amount the government would receive if the appropriate rebate disclosures occurred. The 3% rebate applied to the total amount of affected sales, instead of the estimated damages, resulting in an increase to $16,121,696.04.
Regarding civil penalties, the government argued that because it should have received a 3% rebate on each order it placed, each sale was a false claim subject to statutory penalties. The Court agreed and increased the number of penalties from 21 (the amount used in the original judgment) to 3,352 (the total number of impacted orders under the contract). The Court imposed a penalty of $11,000 for each, resulting in a substantial increase of $36,872,000.
Gen Digital’s damages and penalties now total $53,373,196.04, which includes California’s penalties which were not changed in the new judgment.
Recent Developments
The case is not over yet. On February 13, 2024, Gen Digital filed its own motion to amend the judgment, citing “two discrete errors” in the Court’s re-calculation of damages. Gen Digital contends that the Court erred by including “open market” sales of products not listed on its GSA Schedule and sales that were made prior to Symantec entering into its GSA Schedule Contract. In short, Gen Digital’s position is that the Court cannot hold Gen Digital liable for FCA violations purportedly related to its GSA Schedule Contract if those sales were not related to that contract. On these arguments, Symantec seeks a reduction in the damages award by $15,806,129.
Whether the judgment increase is approximately $37 Million or approximately $52 Million (and we may not know for months how the Court will rule on Gen Digital’s request to amend the judgment), the result is a shock to the system. Below, we highlight important takeaways about this decision to help FCA defendants reduce the likelihood of this happening to them.
Key Takeaways
- Bench Trial vs. Jury Trial. Gen Digital’s case was a bench trial, meaning there was no jury involved, only a judge. If this was a jury trial, and the jury returned the original judgment, the Court likely could not adjust the jury’s damages finding without ordering a new trial. An increase in a damages award, known as “additur,” is only available where the damages are subject to resolution as a matter of law. Given the complicated nature of FCA cases—and particularly calculating damages under the theories of this case—it is virtually impossible for a Court to conclude that the damages could be determined as a matter of law. Without a jury involved, this Court was able to modify its own prior decision without also ordering a new trial. The decision of whether to request a jury trial in an FCA case is an important one that defendants should consider closely with their counsel. Although taking cases to a jury is risky, so too is taking cases to a bench trial, and weighing the pros and cons of each option is critical. The decision could make a world of difference for a defendant.
- Appellate Rights. Gen Digital reserves the right to appeal the District Court’s ruling and judgment. Even in moving to amend the judgment, Gen Digital reserved the right to appeal prior rulings to ensure they continue to have opportunities to challenge the Court’s judgment. When a court acknowledges a mistake like this, rare as it may be, the entire decision may be undermined and it could increase the likelihood that the decision will be overturned, at least in part. Nevertheless, it is important to understand that a district court’s ruling on factual issues at trial will be given great deference on appeal and will only be overturned if those rulings are clearly erroneous. Accordingly, the likelihood of overturning the decision solely on miscalculated damages may be low. But even after a loss at trial, all is not lost. FCA defendants and their counsel should keep in mind their appellate rights, ensure they preserve arguments and objections for future appeal, manage the concessions they may make during litigation, and pursue appeals where errors occur. The judicial system includes checks and balances to guarantee the final outcome is the right one. Defendants and their counsel must ensure they protect their right to invoke those checks and balances.
- Fact Specific Errors Happen. Ultimately, the increase in the judgment in this case was due to an alleged fact-specific error after twelve years of litigation and a four-week trial caused by the Court’s misunderstanding of the government’s position. Notably, Gen Digital argued that the theory of damages the Court adopted in the amended judgment was not previously raised by the government in the litigation, so there still remains some doubt as to whether that calculation of damages will hold after Gen Digital’s motion to amend and likely subsequent appeal. Given the complexity of the issues and the obvious confusion in the Court’s ruling, it is unlikely a similar miscalculation would occur in the average FCA case. Nevertheless, FCA defendants and their attorneys should approach litigation with an understanding of where confusion can arise so they can prepare for the outlier circumstances seen in the Gen Digital case.
If you have questions about the Gen Digital decision or other FCA-related matters, please contact Matt Feinberg or another member of PilieroMazza’s False Claims Act or Audits & Investigations teams.
____________________
Looking for practical insights on gaining a competitive advantage through a deeper understanding of the government’s compliance requirements? Check out PilieroMazza’s podcasts “GovCon Live!” and “Clocking in with PilieroMazza.
