United States v. Honeywell Int'l Inc.
| Decision Date | 30 August 2022 |
| Docket Number | 21-5179 |
| Citation | 47 F.4th 805 |
| Parties | UNITED STATES of America, Appellee v. HONEYWELL INTERNATIONAL INC., Appellant |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Craig S. Primis argued the cause for appellant. With him on the briefs was James Y. Xi.
Tara S. Morrissey, Andrew R. Varcoe, Beth S. Brinkmann, and Daniel G. Randolph were on the brief for amicus curiae Chamber of Commerce of the United States of America in support of appellant.
Sean R. Janda, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief were Brian M. Boynton, Acting Assistant Attorney General, and Michael S. Raab and Charles W. Scarborough, Attorneys.
Before: Tatel* and Rao, Circuit Judges, and Ginsburg, Senior Circuit Judge.
In this False Claims Act case, the United States sued Honeywell International Inc. for providing the material in allegedly defective bulletproof vests sold to or paid for by the government. Among other relief, the government seeks treble damages for the cost of the vests. It has already settled with the other companies involved, and Honeywell seeks a pro tanto , dollar for dollar, credit against its common damages liability equal to those settlements. For its part, the government argues Honeywell should still have to pay its proportionate share of damages regardless of the amount of the settlements with other companies. The district court adopted the proportionate share rule but certified the question for interlocutory review under 28 U.S.C. § 1292(b).
The False Claims Act does not provide a settlement offset rule, nor does it include a common law term incorporating such a rule. This case presents the rare circumstance in which this court must establish a federal common law rule to govern damages arising from federal law. We reverse the district court and hold the pro tanto rule is the appropriate approach to calculating settlement credits under the False Claims Act.
The False Claims Act ("FCA") "impose[s] liability for fraud against the government." United States ex rel. Cimino v. Int'l Bus. Machs. Corp. , 3 F.4th 412, 415 (D.C. Cir. 2021). See generally Act of Mar. 2, 1863, ch. 67, 12 Stat. 696 (). As relevant here, the FCA prohibits fraudulently inducing the government into a contract and falsely certifying the specifications of an item sold to the government. See 31 U.S.C. § 3729(a)(1)(A)–(B). Each false claim subjects a person to treble damages in addition to a civil penalty. Id. § 3729(a)(1) ().
In FCA cases, when multiple parties cause the same indivisible harm to the government, courts have applied joint and several liability without a right to contribution.1 See, e.g. , United States v. TDC Mgmt. Corp., Inc. , 288 F.3d 421, 429 (D.C. Cir. 2002) (). In general, when a joint tortfeasor settles, the settlement counts against a non-settling party's potential liability. See RESTATEMENT (SECOND) OF TORTS § 886A cmt. m (1979) (assuming settlement offsets and recognizing the lack of consensus about how to assess the proper offset). The parties agree as to these basic principles of law. The question of first impression we decide is the correct rule for calculating the settlement credit for FCA damages.
Because this case comes to us on an interlocutory appeal, we recount the undisputed facts as found by the district court on summary judgment. The litigation arises from allegedly fraudulent claims for bulletproof vests made from "Z Shield." Z Shield is an "anti-ballistic material" made of "Zylon" fiber that Honeywell purchased from third parties. Honeywell sold more than $15 million worth of Z Shield to Armor Holdings, Inc., which in turn incorporated the material into bulletproof vests. Armor Holdings sold those vests to the federal government and to state and local law enforcement agencies who purchased the vests with federal funding. United States v. Honeywell Int'l Inc. , 502 F. Supp. 3d 427, 435 (D.D.C. 2020). "Honeywell marketed Z Shield ... as the best ballistic product in the market for ballistic resistance." Id. (cleaned up). But when two police departments tested the vests in high temperatures, they allegedly degraded. Id. at 446, 462–63. Upon further investigation, the federal government concluded that "Zylon [was a] material that appears to create risk of death or serious injury as a result of degraded ballistic performance when used in body armor" and stopped buying the vests. Id. at 447 (cleaned up).
The government brought this suit under the FCA against Honeywell. It alleged that Honeywell knew about the problems with Zylon but hid them from the government, fraudulently misrepresenting that Z Shield was "state-of-the-art ballistics technology." The government claimed damages for the full amount paid for the vests, approximately $11.5 million, trebled to roughly $35 million. Id. at 479 ; see 31 U.S.C. § 3729(a)(1). While this suit was ongoing, the government secured settlements totaling $36 million with Armor Holdings and foreign Zylon providers for their role in manufacturing and supplying the vests. See Honeywell , 502 F. Supp. 3d at 477–80.
In light of these settlements, Honeywell moved for summary judgment on the question of damages (as well as other issues not before us on this interlocutory appeal). Honeywell claimed it was entitled to a credit in the amount of the settlements already secured by the government as compensation for the allegedly defective Z Shield vests. Honeywell maintained the court should apply a pro tanto2 approach, reducing any common damages Honeywell owed by the amount of the settlements. Applying that approach here would mean that, even if the government's allegations were true, Honeywell would pay no damages because the settlements exceeded its alleged damages liability. Opposing this pro tanto approach to calculating settlement offsets, the government argued the district court should apply a proportionate share approach. Under this approach, Honeywell's settlement credit would be limited by the other parties’ proportion of fault, meaning Honeywell would still be responsible for its proportionate share of the $35 million, regardless of the amount of the settlements.
The district court adopted the proportionate share approach advanced by the government. The court relied on McDermott, Inc. v. AmClyde , in which the Supreme Court addressed the proper settlement credit rule for admiralty suits and chose the proportionate share rule over the pro tanto rule. 511 U.S. 202, 207, 217, 114 S.Ct. 1461, 128 L.Ed.2d 148 (1994) ; see also id. at 208–209, 114 S.Ct. 1461 (). The district court balanced four considerations in choosing the proportionate share rule: "consistency with prior decisions, promotion of settlement, judicial economy, and equity." Honeywell , 502 F. Supp. 3d at 480 (citing McDermott , 511 U.S. at 208–17, 114 S.Ct. 1461 ). For the purposes of the FCA, the district court found the consistency with precedent factor inconclusive; the proportionate share approach "does not undermine the incentive to settle" and "is no less efficient or workable than" the pro tanto approach; and "the proportionate share approach is more equitable." Id. at 482. The court emphasized that applying the pro tanto rule "would be wholly inequitable" because it would "permit Honeywell to escape damages liability altogether." Id. at 485.
The court certified this question for interlocutory review under 28 U.S.C. § 1292(b) because it was an important "quintessential abstract legal issue." United States v. Honeywell Int'l Inc. , 2021 WL 2493382, at *5 (D.D.C. June 18, 2021) (cleaned up). We agreed to hear the interlocutory appeal.
By permitting this interlocutory appeal on the question of the appropriate measure of damages offsets under the FCA, we decided to answer a "controlling question of law as to which there is substantial ground for difference of opinion." 28 U.S.C. § 1292(b). Because we have undertaken to review the district court's legal conclusions, the appropriate standard of review is de novo. Kahl v. Bureau of Nat'l Affairs, Inc. , 856 F.3d 106, 113 (D.C. Cir. 2017).
Although the de novo standard of review is well established in these circumstances, the government maintains we should review the district court's choice of a settlement offset approach for abuse of discretion. It contends the offset rule is not a question of law because the FCA does not resolve the issue and courts have discretion to pick a settlement offset approach on a case-by-case basis.
We reject the government's characterization of the issue on appeal. Although we agree the FCA does not provide a settlement offset rule, as explained further below, the choice of a damages rule is not a matter of judicial discretion, but rather requires a common law determination of the proper rule to apply in FCA suits. In other contexts when it was necessary for a court to establish a proper settlement offset rule, the Supreme Court and other courts of appeals have treated the determination as a question of law.3 See, e.g. , McDermott , 511 U.S. at 207, 114 S.Ct. 1461 (); Franklin v. Kaypro Corp. , 884 F.2d 1222, 1228 (9th Cir. 1989) (); Singer v. Olympia Brewing Co. , 878 F.2d 596, 599 (2d Cir. 1989) (same). When federal courts set damages rules, they do so as a matter of common law , not amorphous judicial discretion. Fashioning a common law rule is not the same as...
To continue reading
Request your trial