United States District Court, S.D. Ohio
For USA, Plaintiff: Alan S Gale, LEAD ATTORNEY, Dennis L Phillips, U.S. Department of Justice, Washington, DC; Dale Ann Goldberg, Pamela M Stanek, United States Attorney's Office - 3, Dayton, OH; Michael F Hertz, Stephen D Altman, Department of Justice, Civil Div/Commerical Litigation Branch, Washington, DC.
For United Technologies, Defendant: Brian C Elmer, Peter B Work, LEAD ATTORNEY, David Z Bodenheimer, Richard L Beizer, LEAD ATTORNEY, PRO HAC VICE, Crowell & Moring, Washington, DC; David Carr Greer, James H Greer, LEAD ATTORNEY, Bieser, Greer & Landis - 3, Dayton, OH; Fred H Bartlit, PRO HAC VICE, Hamilton H Hill, Jeffrey A Hall, Michael J Valaik, Chicago, IL.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
THOMAS M. ROSE, UNITED STATES DISTRICT JUDGE.
This action is before the Court on remand from the United States Court of Appeals for the Sixth Circuit. After a bench trial, this Court rejected Defendant United Technologies Corporation's assertion of a statute of limitations defense and found it liable on the United States' claims arising under the False Claims Act, 31 U.S.C. § § 3729(a)(1)& (2), (" FCA" ). The Court found, inter alia, that United Technologies' predecessor in interest, Pratt and Whitney (" Pratt" ), violated the False Claims Act by fraudulently asserting that its ceiling price quotes were decremented in Pratt's Best and Final Offer (" BAFO" ) Exhibit 3.8.1 on all sole-sourced vendors in an amount within the range established by Pratt's Procurement Cost Accounting Group (" PCAG" ) recommendations for each supplier and Pratt's past experience in achieving PCAG recommendations. The Court also found that Pratt and Whitney violated the False Claims Act by fraudulently asserting that the prices it submitted were substantiated by the most recent data, and by fraudulently asserting that it applied the predicted domestic rate of inflation. The Court also found that the Government suffered no actual damages in the years under review, and that the Government was precluded from pursuing common law claims. United States v. United Technologies Corp., 2008 WL 3007997 (S.D. Ohio Aug. 1, 2008). Both parties appealed this Court's decision.
The United States Court of Appeals for the Sixth Circuit affirmed the statute of limitations ruling and the ruling that Defendant had violated the False Claims Act, but found that the government's common law claims were not precluded by prior litigation before the ASBCA. The Sixth Circuit disagreed with this Court's valuation of warranties, disallowed year-to-year off-sets to damages and ordered this Court to find and account for the fair market value of the engines the Air Force received when determining damages. United States v. United Technologies Corp., 626 F.3d 313, (6th Cir. 2010).
The Court has since found United Technologies liable on the United States' claims for payment by mistake and unjust enrichment. Thus, attention is now focused on determining the amount of damages. Most particularly, the Court is focused upon three instructions from the Sixth Circuit: First, " [t]o calculate the difference between what the government paid and what it should have paid, [taking] account for the diminished value of the new warranties." 626 F.3d at 322. Second, to " calculate the difference between what the government paid each year--FEC III, IV, and V--and what it should have paid each year."  Id. Third, to " calculate what the government eventually paid each year during FEC III, IV, V, and VI, what it should have paid each year based on what the government received, then take the difference between the two." Id.
Familiarity with the factual background established in the prior ruling of this Court and that of the United States Court of Appeals for the Sixth Circuit is presumed. The Court bears in mind that " [d]amages awarded under the [FCA] typically are liberally calculated to ensure that
they 'afford the government complete indemnity 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)).
II. FINDINGS OF FACT
The first step in this analysis is determining " what the government eventually paid each year." Id. What the government eventually paid in each year of the Fighter Engine Contract (" FEC" ) for what it actually received is shown in Trial Ex. PX 1192, which includes a summary of what the government's records showed it eventually paid in each FEC year, " that related directly to the specific contract modifications for the definitization of each of the engine buys (FECs I THRU VI). . . ." See Trial Ex. PX 1192 (summarizing by FEC year the total amounts paid for all engine funding " mods" ); Tr: 4406:11-19.
In FEC I, the government eventually paid $423,416,265, in FEC II, the government eventually paid $586,187,736, in FEC III $574,371,030, in FEC IV $632,957,656, in FEC V, $579,293,580, and in FEC VI $387,385,038. PX 1192.
As to what the government " should have paid," 626 F.3d at 322, United Technologies continues to assert that what the government actually paid is what it should have paid. United Technologies proposes that historical prices, comparable sales, independent price appraisals and market prices establish fair market value. The historical prices, comparable sales, and independent price appraisals, however, are derived from cost data that are older, and more out of date than the cost data the United States uses to calculate damages. Indeed, it appears that these prices are higher because they derive from a time prior to when the Air Force moved away from single source jet engine procurements to force prices down.
Independent estimates such as the DCAA audit and Rand study were based on United Technologies's costs on earlier sole-sourced procurements. " Even though our team was called the independent team and independent estimates,...the independence was not necessarily independent from Pratt [and] Whitney...data but in fact we needed to use the same data Pratt and Whitney used..." Tr. 593:9-18. Even DX 131, described the " independent estimates as a detailed cost estimate based on actual cost data," DX 131 at D0000345, lists the various cost elements that went into the estimate, id. at D0000345-350 and states that in addition to historical costs, United Technologies's proposed Increased Life Core Digital Electronic Engine Control costs for the new engine configuration were included in the estimate to which United Technologies added a 25% cushion. Similarly, the Rand study was based on cost data from prior United Technologies and GE engines. Tr. at 597:9 - 598:9.
United Technologies also advocates applying deference recognized in Chevron U.S.A. Inc., v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), to the opinions of Air Force procurement experts regarding the engines' value, failing to establish any of the predicates that would warrant Chevron deference. Moreover, while United Technologies is correct that an Air Force report to Congress that the fighter engine competition was " One of the best examples" of dual-sourced competition stands " unrebutted, ...