United States ex rel. Daniel Feldman v. Van Gorp, No. 10-3297 (2d Cir. 2012)
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Defendants appealed from the district court's denial of their motion for judgment as a matter of law and their motion for a new trial following a jury verdict partially in favor of plaintiff on his claims regarding the misuse of a research training grant brought on behalf of the government pursuant to the False Claims Act, 31 U.S.C. 3729 et seq., and awarding principally $855,714 in treble actual damages. The court concluded that: (1) where the government had provided funds for a specified good or service only to have defendant substitute a non-conforming good or service, a court could, upon a proper finding of False Claims Act liability, calculate damages to be the full amount of the grant payments made by the government after the material false statements were made; (2) there was sufficient evidence from which a reasonable jury could determine that the false statements at issue were material to the government's funding decision; and (3) the district court did not abuse its discretion in excluding evidence of inaction on the part of the NIH in response to plaintiff's complaint regarding the fellowship program in which he had been enrolled. Accordingly, the court affirmed the judgment.
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10-3297 (L) Feldman v. van Gorp et ano. 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2011 4 (Argued: January 30, 2012 Decided: September 5, 2012) 5 Docket Nos. 10-3297( Lead) 11-975 (Con) 6 ------------------------------------- 7 United States of America ex rel. Daniel Feldman, 8 Plaintiff-Appellee, 9 - v - 10 Wilfred van Gorp and Cornell University Medical College, 11 Defendants-Appellants.* 12 ------------------------------------- 13 Before: SACK, RAGGI, and CHIN, Circuit Judges. 14 Appeal from a judgment of the United States District 15 Court for the Southern District of New York (William H. Pauley 16 III, Judge) denying the defendants' motion for judgment as a 17 matter of law and their motion for a new trial following a jury 18 verdict partially in favor of the plaintiff on his claims brought 19 on behalf of the government pursuant to the False Claims Act, 31 20 U.S.C. § 3729 et seq., and awarding principally $855,714 in * The clerk's office is respectfully directed to amend the official caption of this case as shown above. 1 treble actual damages. We conclude that: 1) where the government 2 has provided funds for a specified good or service only to have 3 defendant substitute a non-conforming good or service, a court 4 may, upon a proper finding of False Claims Act liability, 5 calculate damages to be the full amount of the grant payments 6 made by the government after the material false statements were 7 made; 2) there was sufficient evidence from which a reasonable 8 jury could determine that the false statements at issue were 9 material to the government's funding decision; and 3) the 10 district court did not abuse its discretion in excluding evidence 11 of inaction on the part of the National Institutes of Health in 12 response to the plaintiff's complaint regarding the fellowship 13 program in which he had been enrolled. 14 15 16 17 18 Affirmed. Appearances: TRACEY A. TISKA, R. Brian Black, Eva L. Dietz, on the brief) Hogan Lovells US LLP, New York, New York, for DefendantAppellant Cornell University. 19 20 21 Nina M. Beattie, Brune & Richard LLP, New York, New York, for DefendantAppellant Wilfred van Gorp. 22 23 24 25 MICHAEL J. SALMANSON (Scott B. Goldshaw, on the brief) Salmanson Goldshaw, P.C., Philadelphia, Pennsylvania, for Plaintiff-Appellee. 26 27 28 29 30 31 32 Jean-David Barnea, Rebecca C. Martin, Sarah S. Normand, Assistant United States Attorneys, of counsel, for Preet Bharara, United States Attorney for the Southern District of New York, for Amicus Curiae, The United States of America. 2 1 2 SACK, Circuit Judge: The defendants appeal from a judgment of the United 3 States District Court for the Southern District of New York 4 (William H. Pauley III, Judge) denying their motion for judgment 5 as a matter of law and their motion for a new trial following a 6 jury verdict partially in favor of the plaintiff on his claims 7 regarding the misuse of a research training grant brought on 8 behalf of the government pursuant to the False Claims Act, 31 9 U.S.C. § 3729 et seq., and awarding principally $855,714 in 10 treble actual damages. We conclude that: 1) where the government 11 has provided funds for a specified good or service only to have 12 defendant substitute a non-conforming good or service, a court 13 may, upon a proper finding of False Claims Act liability, 14 calculate damages to be the full amount of the grant payments 15 made by the government after the material false statements were 16 made; 2) there was sufficient evidence from which a reasonable 17 jury could determine that the false statements at issue were 18 material to the government's funding decision; and 3) the 19 district court did not abuse its discretion in excluding evidence 20 of inaction on the part of the National Institutes of Health in 21 response to the plaintiff's complaint regarding the fellowship 22 program in which he had been enrolled. 3 1 BACKGROUND 2 In 1997, appellants Cornell University Medical College 3 ("Cornell") and Dr. Wilfred van Gorp, a professor of psychiatry 4 at Cornell, applied for funding from the Ruth L. Kirschstein 5 National Research Service Award Institutional Research Training 6 Grant program, also known as the "T32" grant program, of the 7 National Institutes of Health ("NIH"). 8 pre- and post-doctoral training programs in biomedical, 9 behavioral, and clinical research. The T32 program funds T32 grants are meant to "help 10 ensure that a diverse and highly trained workforce is available 11 to assume leadership roles related to the Nation's biomedical and 12 behavioral research agenda." 13 Service Award Institutional Research Training Grants," at 1 (May 14 16, 1997), United States ex rel. Feldman v. Van Gorp, No. 10- 15 3297, Joint Appendix ("J.A.") 2437 (2d Cir. Jan. 26, 2012) ("NIH 16 Guide"). 17 study leading to clinically-oriented degrees, "except when those 18 studies are a part of a formal combined research degree program, 19 such as the M.D./Ph.D." 20 programs must train their fellows "with the primary objective of 21 developing or extending their research skills and knowledge in 22 preparation for a research career." 23 24 NIH Guide, "NIH National Research Positions funded through T32 grants may not be used for Id. at 2, J.A. 2438. Instead, funded Id. Institutions applying for T32 grants undergo a twotiered review process. It begins with a review of the proposal 4 1 by a twenty-member "Initial Research Group" ("IRG"), also called 2 a "peer review committee." 3 in scientific fields related to that of the grant application 4 under review; they are not NIH employees. 5 applications based on his or her view of its scientific or 6 technical merit guided by specified criteria, including, among 7 other factors: the program director's and faculty's training 8 records, as determined by the success of former trainees; the 9 objective, design, and direction of the program; the caliber of 10 the faculty; the institutional training environment, including 11 the commitment of the institution to training and the resources 12 available to trainees; and the institution's proposed plans for 13 recruiting and selecting high-quality trainees. 14 then averaged to arrive at an IRG "priority score." 15 Dr. Robert Bornstein at 1190-91, July 21, 2010 ("Bornstein 16 Testimony"), J.A. 1955. 17 members' written comments in a summary statement, which is 18 transmitted to the NIH. 19 IRG members are independent experts Each member scores The scores are Testimony of This score is included with the IRG The "second tier" of review is performed by the 20 advisory council of the appropriate constituent organization of 21 the NIH, in this case the National Institute of Mental Health 22 ("NIMH"). 23 priority score, and establishes a "pay line" at the point in the 24 list of applications where there is no more funding available; 25 only the applications above the "pay line" are recommended to the The advisory council ranks the applications by 5 1 director of the funding institute as potential grant recipients. 2 "The role of the advisory council is not to second-guess the 3 scientific review of the IRG. 4 applications to ensure that they further the goals and interests 5 of the awarding institute. 6 resulting high-priority score are keys to NIH funding." 7 1190, J.A. 1955-56. 8 9 Rather, [the council] reviews the Thus, the IRG review and the Id. at Once an application has placed above the "pay line," the advisory council makes recommendations based on the 10 scientific merit of the proposal, as judged by the IRG, and the 11 relevance of the proposal to the awarding institute's programs 12 and priorities. 13 year, and recipient institutions are eligible for up to four 14 years of additional funding. Funding is typically approved by the NIH for one 15 In order to renew a T32 grant, the recipient 16 institution (in this case Cornell) must submit an annual renewal 17 application and a progress report detailing the status of its 18 project. 19 applications are reviewed solely by the NIH on a noncompetitive 20 basis. 21 the grant's budget. 22 must contain a "comparison of actual accomplishments with the 23 goals and objectives established for the period," and must 24 specify "[r]easons why established goals were not met," if indeed 25 they were not. 45 C.F.R. § 74.51(d)(1)-(2). In contrast with initial grant applications, renewal The NIH considers the progress made under the grant and By regulation, the annual progress report 6 1 Recipient institutions must also "immediately notify" 2 NIH of "developments that have a significant impact" on the 3 research program, including "problems, delays, or adverse 4 conditions which materially impair the ability to meet the 5 objectives of the award." 6 must also include a "statement of the action taken or 7 contemplated, and any assistance needed to resolve the 8 situation." 9 for Recipients of PHS Research Awards, 70 Fed. Reg. 71312-01, Id. § 74.51(f). This notification Id.; see also Draft OIG Compliance Program Guidance 10 71320 (Nov. 28, 2005) ("Prompt voluntary reporting will 11 demonstrate the institution's good faith and willingness to work 12 with governmental authorities to correct and remedy the problem. 13 In addition, reporting such conduct may be considered a 14 mitigating factor by the responsible law enforcement or 15 regulatory office . . . ."). 16 Cornell's initial grant application at issue here 17 sought funding for a fellowship program entitled "Neuropsychology 18 of HIV/AIDS Fellowship." 19 2254 (April 24, 1997) ("Grant Application"). 20 explained that the two-year fellowship would train as many as six 21 post-doctoral fellows at a time in "child and adult clinical and 22 research neuropsychology with a strong emphasis upon research 23 training with HIV/AIDS." 24 program would, according to the application, build on the Cornell 25 faculty's extensive research into the neuropsychology of Van Gorp Grant Application at 1, J.A. The application Id. at 2, J.A. 2255. 7 The training 1 HIV/AIDS, which included projects examining distress levels in 2 HIV-AIDS patients during the course of their illness, the 3 relationship between the neuropsychology of HIV/AIDS and 4 patients' abilities to function at work or in school, and the 5 possibility of using neuropsychological testing to predict 6 whether AIDS patients will suffer from dementia. 7 application further explained that van Gorp would serve as the 8 program director, and that he had a "long history of successful 9 research, training and mentoring of students in HIV[] related 10 11 work." The Id. at 40, J.A. 2295. The 123-page grant application outlined the 12 fellowship's curriculum in detail. Fellows would be required to 13 take "several formal, core didactic courses," and a number of 14 elective courses. 15 the fellowship, fellows would enroll in five core courses, some 16 of which "have been designed specifically for the HIV 17 Neuropsychology Fellowship." 18 would be supplemented by a "large number of courses, lectures, 19 neuroscience educational programs, as well as other seminars in a 20 variety of sub-speciality areas." 21 second year, which included four core courses, would allow 22 fellows to "develop more independent research skills and devote 23 more time to their HIV research." 24 under the grant would be monitored monthly by a formal training 25 committee comprised of several faculty members, as "[o]ngoing Id. at 45, J.A. 2300. In the first year of Id., J.A. 2300. 8 Id. Id. These core courses The curriculum for the The fellows' progress 1 evaluation of the curriculum, trainees and faculty is an integral 2 part of the training program." Id. at 48, J.A. 2303. 3 The Cornell grant application identified a list of 4 fourteen faculty members who would serve as "Key Personnel," 5 which the NIH defined as "individuals who contribute to the 6 scientific development or execution of the project in a 7 substantive way." 8 2612 (June 8, 1999). 9 these research projects. NIH Grant Application Instructions at 26, J.A. The application described in detail some of It also asserted, "Our faculty has a 10 solid track record in quality and productive research in brain- 11 behavior issues, including research in HIV/AIDS-related research 12 [sic]." 13 identified additional institutions which would serve as clinical 14 resources, including Cornell University, Memorial Sloan-Kettering 15 Cancer Center, St. Vincent's Hospital, and Gay Men's Health 16 Crisis Center. 17 Grant Application at 48, J.A. 2303. And the application In describing the fellowship program's commitment to 18 research training, the grant application explained that "the 19 majority of [the fellows'] clinical work will be with persons 20 with HIV infection." 21 Fellows would "devote an average of 75% of their time to research 22 and an average of 25% [of their] time to clinical work with 23 persons with HIV/AIDS and other neuropsychiatric disorders." 24 25 Grant Application at 44, J.A. 2299. Id. The IRG gave Cornell's grant application a high priority score, and the NIH subsequently approved funding for two 9 1 fellows for the fiscal year beginning September 30, 1997, with 2 the possibility of additional funding for up to four additional 3 years. 4 following four years, from fiscal year 1999 (July 1, 1998, 5 through June 30, 1999) to fiscal year 2002 (July 1, 2001, through 6 June 30, 2002), all of which the NIH approved. 7 accompanying annual progress reports, Cornell and van Gorp 8 indicated that there had been no material alterations to the 9 program as described in the original grant application. Cornell submitted renewal applications in each of the 10 In the In the renewal application for the second renewal year 11 (the third year overall), for example, Cornell and van Gorp wrote 12 that "[a]ll core and supporting faculty listed in our original 13 application are continuing. . . . 14 in the courses or training program from that listed in the 15 original application, except for the addition of two [specified] 16 courses . . . ." 17 19, 1999). 18 program had been relocated from Cornell's White Plains campus to 19 its New York City (Manhattan) campus in order to provide fellows 20 with "immediate access to subjects and patients who have 21 HIV/AIDS." 22 fifth year stated that "[t]he core structure of our training 23 program has remained the same as in years past and to that 24 described in our initial application." 25 4, J.A. 2411 (January 24, 2000); 2001 Progress Report at 5, J.A. There have been no alterations 1999 Progress Report at 7, J.A. 2402 (January The renewal application also explained that the Id. The renewal applications for the fourth and 10 2000 Progress Report at 1 2422 (January 22, 2001). 2 applications. 3 The NIH approved each of these renewal In September 1998, at about the time the first renewal- 4 year began, Daniel Feldman, the plaintiff,1 was selected by 5 Cornell to participate in the fellowship program. 6 program in December 1999, before the completion of his two-year 7 fellowship. 8 included Elizabeth Ryan, Clifford Smith, Kimberly Walton Louis, 9 and Evan Drake. He left the Other fellows who participated in the program At trial, Feldman presented evidence that the 10 actual fellowship deviated in many ways from that described in 11 the Grant Application, and that Cornell and van Gorp failed to 12 inform NIH of these deviations. 13 Testimony presented at trial indicated that some of the 14 faculty members identified as "Key Personnel" in the initial 15 application did not in fact contribute in any substantive way to 16 the fellowship program. 17 contributions to the program of two of these faculty members, Dr. 18 Tatsuyki Kakuma and Dr. Michael Giordano, were considerably 19 limited, if not entirely eliminated, by the fact that the two 20 doctors were not in physical proximity to the fellows during the 21 grant period. 22 little or no interaction with the remaining key personnel, and Van Gorp acknowledged that the Many fellows, according to their testimony, had 1 Because this suit is being brought by Feldman on behalf of the United States, Feldman is technically the "plaintiffrelator." See infra, note [3]. We nonetheless refer to him simply as the "plaintiff." 11 1 were unaware that these faculty members were or were supposed to 2 be available as resources. 3 testimony, fellows were largely unaware of research opportunities 4 at medical centers other than Cornell. 5 In addition, according to this There was also testimony in the district court to the 6 effect that Cornell and van Gorp failed to notify NIH that the 7 curriculum outlined in the initial grant application was never 8 implemented. 9 were not regularly conducted for fellows, and fellows were not Several core courses identified in the application 10 informed that these courses were a required component of the 11 program. 12 never evaluated or supervised by the training committee referred 13 to in the Grant Application. 14 Moreover, according to this testimony, fellows were Feldman also presented evidence that the research and 15 clinical training described in the initial grant application 16 differed significantly from the actual training received. 17 rules provide that fellows in a T32 program "must devote their 18 time to the proposed research training and must confine clinical 19 duties to those that are an integral part of the research 20 training experience." 21 Grant Announcement at 9, J.A. 2568 (June 16, 2006). 22 accordance with these requirements, the grant application stated 23 that "the majority of [the fellows ] clinical work will be with 24 persons with HIV infection." 25 Further, in explaining the training program's relocation from NIH NIH Guide at 3, J.A. 2439; T32 Training And, in Grant Application at 44, J.A. 2299. 12 1 White Plains to Manhattan, the third-year renewal application 2 explained that "[f]ellows [would be] housed within a large, 3 medical/surgical setting with immediate access to subjects and 4 patients who have HIV/AIDS." 5 2402. 1999 Progress Report at 7, J.A. 6 But, as the plaintiff summarizes the trial testimony, 7 out of the 165 clinical cases that the fellows saw during their 8 fellowship, only three involved HIV-positive patients.2 9 Br. at 22. Pl.'s Several fellows testified that much of the research 10 that they performed under the grant program had no relation to 11 HIV or AIDS at all. 12 the research projects he worked on under the T32 grant were 13 primarily related to epilepsy and aging, and did not involve an 14 HIV population. 15 Drake worked on during his fellowship, he said, only one focused 16 specifically on HIV. 17 worked on only one HIV-focused project during his time as a 18 fellow. 19 For example, Clifford Smith testified that Out of the eight research projects that Evan Feldman similarly told the court that he In July 2001, after he had left the program, Feldman 20 submitted a letter to the NIH complaining about the program's 21 focus on clinical work rather than research, and the fellows' 2 The parties stipulated that of Ryan's 32 clinical patients, two were HIV positive; of Smith's 35 clinical patients, none were HIV positive; of Louis's 23 patients, none were HIV positive; of Drake's 48 patients, none were HIV positive; and of Feldman's 27 patients, one was HIV positive. 13 1 limited access to HIV-positive patients. 2 submitted another letter to the NIH, again complaining that the 3 fellowship program deviated from its description in the initial 4 grant application. 5 an investigation of the complaint, which Cornell completed in 6 June 2003. 7 the investigation uncovered no wrongdoing. 8 In March 2002, he In response, the NIH asked Cornell to conduct Cornell then sent Feldman a letter informing him that On October 14, 2003, Feldman filed a qui tam complaint 9 pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729 et 10 seq.,3 alleging that Cornell and van Gorp made false claims to 3 In a qui tam action, a private plaintiff, known as a relator, brings suit on behalf of the Government to recover a remedy for a harm done to the Government. See United States ex rel. Eisenstein v. City of New York, [556 U.S. 928, 932] (2009) (describing qui tam actions under the False Claims Act, 31 U.S.C. § 3729 et seq.); see also Black's Law Dictionary 1282 (8th ed. 2004) (defining "qui tam action" as "[a]n action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive"). Qui tam plaintiffs, even if not personally injured by a defendant's conduct, possess constitutional standing to assert claims on behalf of the Government as its effective assignees. There is, however, no common law right to bring a qui tam action; rather, a particular statute must authorize a private party to do so. Woods v. Empire Health Choice, Inc., 574 F.3d 92, 97-98 (2d Cir. 2009) (footnote and some citations omitted; second brackets in original). Where the United States has elected not to proceed with the action, as here, the relator is entitled personally to recover 14 1 the United States in the Grant Application and in the four 2 renewal applications. 3 these applications were false because the fellowship's 4 curriculum, resources, faculty members, and training differed 5 significantly from that described in the application, and in the 6 subsequent renewal applications representing that no changes had 7 been made to the program. 8 2007, after the United States declined to intervene in this 9 action. Feldman alleged that statements made in The complaint was unsealed in April See Cook County v. United States ex rel. Chandler, 538 10 U.S. 119, 122 (2003) ("The relator must inform the Department of 11 Justice of her intentions and keep the pleadings under seal for 12 60 days while the Government decides whether to intervene and do 13 its own litigating." (citing 31 U.S.C. § 3730(b)(2)-(c))). 14 On January 9, 2009, after discovery had been completed, 15 Cornell and van Gorp moved for summary judgment. On December 7, 16 2009, the district court denied the motion, concluding that there 17 were genuine issues of material fact as to whether the defendants 18 made false statements in both the initial grant application and 19 the renewal applications, and whether those statements were 20 material to the funding decisions. 21 v. Van Gorp ("Feldman I"), 674 F. Supp. 2d 475, 482-83 (S.D.N.Y. 22 2009). United States ex rel. Feldman The district court also concluded that the plaintiff need between 25 and 30 percent of the proceeds of the action or settlement, plus reasonable attorney's fees. See 31 U.S.C. § 3730(d)(2). 15 1 not establish actual damages to the government as an element of 2 an FCA claim because that statute's provision of civil penalties 3 for false and fraudulent claims allowed courts to "find a 4 violation even in the absence of proof of damages to the United 5 States." 6 whether Feldman's recovery would be limited to statutory damages. 7 On December 18, 2009, the defendants moved for Id. at 481. The court did not address, however, 8 reconsideration of the summary judgment decision, arguing that 9 the district court had erred in failing to address the issue of 10 whether Feldman should be limited to statutory penalties because 11 he had not presented sufficient evidence of actual damages to the 12 United States. 13 motion, explaining that although the damages to the United States 14 could not be calculated in the same way they would be in a 15 standard breach-of-contract action because no tangible benefit 16 had been received, the plaintiff would not be limited to 17 statutory damages. 18 ("Feldman II"), No. 03 Civ. 8135, 2010 WL 1948592, at *1-*2, 2010 19 U.S. Dist. LEXIS 47039, at *4-*6 (S.D.N.Y. May 3, 2010). 20 court said that the "'benefit of the bargain' to the government 21 is providing funds to recipients who best fit its specified 22 criteria and that this benefit is lost when funds are diverted to 23 less eligible recipients." 24 47039, at *4-*5. 25 the government would not have awarded the grant absent the false On May 3, 2010, the district court denied the United States ex rel. Feldman v. Van Gorp The Id. at *2, 2010 U.S. Dist. LEXIS Therefore, "if the fact-finder concludes that 16 1 claims, it may properly conclude that the measure of damages is 2 the total amount the government paid." 3 LEXIS 47039, at *6. 4 Id., 2010 U.S. Dist. Before trial, Feldman submitted a motion in limine to 5 exclude evidence including that of NIH's inaction towards Cornell 6 and van Gorp in response to Feldman's complaints about the 7 fellowship program. 8 Feldman's motion to exclude that evidence. 9 that the evidence of NIH's inaction was irrelevant and therefore 10 inadmissible under Rule 402 because "no discovery was conducted 11 concerning the standards [NIH used] to determine the existence of 12 misconduct and whether those standards are at all similar to the 13 elements of an FCA claim." 14 Gorp ("Feldman III"), No. 03 Civ. 8135, 2010 WL 2911606, at *3, 15 2010 U.S. Dist. LEXIS 73633, at *7 (S.D.N.Y. July 8, 2010). 16 Moreover, the court concluded, even if "marginally relevant," the 17 evidence would have been excluded pursuant to Rule 403 because of 18 the possibility that it would confuse or mislead the jury.4 19 On July 8, 2010, the district court granted The court concluded United States ex rel. Feldman v. van Id. The case was tried to a jury for eight days in July 20 2010, resulting in a partial verdict for Feldman. 21 the defendants not liable for false statements in the Grant 4 The jury found The district court similarly excluded evidence of inaction on the part of the New York State Department of Education and the American Psychological Association, but the defendants do not challenge the exclusion of that evidence on appeal. 17 1 Application and the first renewal application, but found 2 liability based on the renewal applications for the third, fourth 3 and fifth years of the grant, i.e., the second, third and fourth 4 renewal years. 5 actual damages in treble the amount NIH paid for the last three 6 renewal years of the grant - the trebling being provided for in 7 the FCA, 31 U.S.C. § 3729(a)(1) -- totaling $855,714. 8 judgment also included statutory penalties of $32,000, for a 9 total of $887,714. On August 3, 2010, the district court awarded The The district court also awarded to the 10 plaintiff $602,898.63 in attorney's fees, $25,862.15 in costs, 11 and $3,121.47 in expenses. 12 On August 25, 2010, the defendants filed a motion for 13 judgment as a matter of law under Rule 50(b), or in the 14 alternative, for a new trial pursuant to Rule 59. 15 argued that there was insufficient evidence from which the jury 16 could properly have concluded that the false statements at issue 17 were material to the NIH's decisions to renew the T32 grant, and 18 that the court should grant judgment as a matter of law, or that 19 such a conclusion was against the weight of the evidence and 20 warranted a new trial. 21 district court erred in determining as a matter of law that 22 damages were equal to the entire grant amounts for the years in 23 which liability was found rather than submitting that question to 24 the jury. The defendants The defendants also argued that the 18 1 The district court denied this motion on December 9, 2 2010. United States ex rel. Feldman v. van Gorp ("Feldman IV"), 3 No. 03 Civ. 8135, 2010 WL 5094402, at *5, 2010 U.S. Dist. LEXIS 4 130358, at *14-*15 (S.D.N.Y. Dec. 9, 2010). 5 that Feldman had presented sufficient evidence for the jury to 6 conclude that the false statements were material to the NIH's 7 funding decisions, noting that NIH's guidelines and instructions 8 on the renewal applications unambiguously stated that it should 9 be notified of any changes made to the grant program. The court concluded Id. at *2- 10 *5, 2010 U.S. Dist. LEXIS 130358, at *4-*14. 11 also relied on its opinion in Feldman III to deny the motion for 12 a jury trial on damages. 13 130358, at *13-*15. 14 Id. at *5, 2010 U.S. Dist. LEXIS The defendants appeal. 15 16 The district court DISCUSSION The defendants contend that: (1) the district court 17 erred in its methodology for determining damages and in 18 determining the amount of those damages, as a matter of law; (2) 19 the jury did not have sufficient evidence from which to conclude 20 that the false statements at issue were material to the funding 21 decision; and (3) the district court erred in excluding evidence 22 of NIH's "inaction" in response to Feldman's complaint. 23 I. Damages 24 The False Claims Act prohibits a person from "knowingly 25 present[ing], or caus[ing] to be presented, [to an officer or 19 1 employee of the United States Government,] a false or fraudulent 2 claim for payment or approval." 3 Liability under the Act also requires a showing of materiality.5 4 Under the Act as currently in force, "the term 'material' means 5 having a natural tendency to influence, or be capable of 6 influencing, the payment or receipt of money or property." 7 Id. § 3729(b)(4); see also Neder v. United States, 527 U.S. 1, 16 8 (1999) ("In general, a false statement is material if it has a 9 natural tendency to influence, or [is] capable of influencing, 31 U.S.C. § 3729(a)(1)(A). 10 the decision of the decisionmaking body to which it was 11 addressed." (brackets in original; internal quotation marks 12 omitted) (criminal fraud case)). 13 The FCA provides for damages equal to "3 times the 14 amount of damages which the Government sustains because of the 15 act of that person," in addition to a "civil penalty." 16 § 3729(a)(1). 17 calculated, but the Supreme Court has recognized that the purpose 18 of damages, even as multiplied, under the Act is to make the 31 U.S.C. The Act does not specify how damages are to be 5 In 2009, Congress amended the False Claims Act to add a specific requirement that to be actionable a false statement must be material. 31 U.S.C. § 3729(a)(1)(B). It purports to apply prospectively and therefore would not apply to this case. See Feldman I, 674 F. Supp. 2d at 480. Never prior to that enactment and absent its materiality provision did we explicitly require a showing of materiality in FCA cases, although six of the seven circuits to address the issue did. See id. (citing decisions). We need not decide here whether a showing of materiality was required because, assuming that it was, the requirement has been met, as we explain in Part II, below. 20 1 government "completely whole" for money taken from it by fraud. 2 United States ex. rel. Marcus v. Hess, 317 U.S. 537, 551-52 3 (1943), superseded by statute as recognized by United States ex 4 rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2d Cir. 2010) 5 ("We think the chief purpose of the statutes here [predecessors 6 of the current False Claims Act, providing for double rather than 7 treble damages] was to provide for restitution to the government 8 of money taken from it by fraud, and that the device of double 9 damages plus a specific sum was chosen to make sure that the 10 government would be made completely whole."). 11 district court here determined that damages could be established 12 as a matter of law, we review that conclusion de novo. 13 Bessemer Trust Co., N.A. v. Branin, 618 F.3d 76, 85 (2d Cir. 14 2010) (stating that where the district court has determined 15 damages, we review its application of legal principles de novo 16 and its factual findings for clear error). 17 Because the See The question of how damages should be measured in an 18 FCA case where "contracts entered into between the government and 19 the Defendants did not produce a tangible benefit to the 20 [government]," United States ex. rel. Longhi v. United States, 21 575 F.3d 458, 473 (5th Cir. 2009), is one of first impression in 22 this Court. 23 erred in concluding that application of the standard benefit-of- 24 the-bargain calculation as a methodology for determining damages 25 was inappropriate in this case, and that it erred in deciding the The defendants argue both that the district court 21 1 amount of damages as a matter of law based on the jury's verdict, 2 rather than allowing the jury to assess the amount of damages 3 due. 4 A. 5 Proper Measure of Damages In most FCA cases, damages are measured as they would 6 be in a run-of-the-mine breach-of-contract case - using a 7 "benefit-of-the-bargain" calculation in which a determination is 8 made of the difference between the value that the government 9 received and the amount that it paid. See United States v. 10 Foster Wheeler Corp., 447 F.2d 100, 102 (2d Cir. 1971) 11 (collecting cases); cf. Terwilliger v. Terwilliger, 206 F.3d 240, 12 248 (2d Cir. 2000) ("[S]o far as possible, [New York contract] 13 law attempts to secure to the injured party the benefit of his 14 bargain, subject to the limitations that the injury -- whether it 15 be losses suffered or gains prevented -- was foreseeable, and 16 that the amount of damages claimed be measurable with a 17 reasonable degree of certainty and, of course, adequately 18 proven." (internal quotation marks omitted)). 19 calculation is employed, for example, when the government has 20 paid for goods or services that return a tangible benefit to the 21 government. 22 This method of There are generally two ways of determining damages in 23 such cases. First, if the non-conforming goods or services have 24 an ascertainable market value, then damages are measured 25 according to the "'difference between the market value of the 22 1 product [the government] received and retained and the market 2 value that the product would have had if it had been of the 3 specified quality.'" 4 Corp., 626 F.3d 1257, 1279 (D.C. Cir. 2010) (quoting United 5 States v. Bornstein, 423 U.S. 303, 316 n.13 (1976)) (alterations 6 omitted). 7 is not ascertainable, then the fact-finder determines the amount 8 of damages by calculating the difference between "the amount the 9 government actually paid minus the value of the goods or services United States v. Science Application Int'l If the non-conforming goods' or services' market value 10 the government received or used," as judged by the fact-finder. 11 Id. 12 The defendants contend that a "benefit-of-the-bargain" 13 calculation was appropriate in this case, and that the district 14 court erred by awarding the government the full amount of the 15 grant for the years for which the violations were found rather 16 than the difference between the value of the training promised 17 and that actually delivered. 18 contrary, that a different measure of damages is appropriate in 19 cases such as this, where "the defendant fraudulently sought 20 payments for participating in programs designed to benefit third- 21 parties rather than the government itself" and the government 22 received nothing of tangible value from the defendant. 23 also Longhi, 575 F.3d at 473 ("[W]here there is no tangible 24 benefit to the government and the intangible benefit is 25 impossible to calculate, it is appropriate to value damages in The plaintiff argues, to the 23 Id.; see 1 the amount the government actually paid to the Defendants."). 2 This approach rests on the notion that the government receives 3 nothing of measurable value when the third-party to whom the 4 benefits of a governmental grant flow uses the grant for 5 activities other than those for which funding was approved. 6 other words, when a third-party successfully uses a false claim 7 regarding how a grant will be used in order to obtain the grant, 8 the government has entirely lost its opportunity to award the 9 grant money to a recipient who would have used the money as the 10 11 In government intended. The plaintiff and the United States, as amicus curiae, 12 argue that this is such a case: 13 tangible benefit from the T32 grant -- students and others may 14 have, but not the government. 15 to, but did not thereby, promote "child and adult clinical and 16 research neuropsychology with a strong emphasis upon research 17 training with HIV/AIDS." 18 plaintiff argues that the government is therefore entitled to 19 damages equal to the full amount of grants awarded to the 20 defendants based on their false statements. 21 22 23 The government received no The grant represented an attempt Grant Application at 2, J.A. 2255. The We conclude that the measure of damages advocated by the plaintiff and the United States is correct. Although we have not addressed this question, several 24 of our sister circuits have done so in decisions that support the 25 conclusion we now reach. See Science Application, 626 F.3d at 24 1 1279 (D.C. Cir.); Longhi, 575 F.3d at 473 (5th Cir.); United 2 States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008) ("The 3 government offers a subsidy . . . with conditions. 4 conditions are not satisfied, nothing is due."); United States v. 5 Mackby, 339 F.3d 1013, 1018-19 (9th Cir. 2003) ("Had Mackby been 6 truthful, the government would have known that he was entitled to 7 nothing . . . .").6 When the 8 The defendants point out, however, that other courts 9 have applied the "benefit-of-the-bargain" calculation in cases 10 they assert are similar to this one. They argue that because 11 "[t]he ultimate beneficiary of all government grants or contracts 12 is the public regardless of who receives the 'direct' benefit," 13 the flow of benefits to a third-party should not be determinative 14 of the damages measure. Defs.' Reply Br. at 5. 6 District courts within this Circuit have also employed this methodology. See United States v. Karron, 750 F. Supp. 2d 480, 493 (S.D.N.Y. 2011), appeal filed, No. 11-1924 (concluding that the defendant was liable for the full amount of a government-funded research grant because he "cannot establish that the Government received any ascertainable benefit from its relationship with CASI. Even assuming that CASI in fact met various milestones and provided reports to the Government, such actions yielded no tangible benefit to the Government."); United States ex rel. Antidiscrimination Ctr. of Metro N.Y., Inc. v. Westchester County, No. 06 Civ. 2860, 2009 WL 1108517, at *3, 2009 U.S. Dist. LEXIS 35041, at *9 (S.D.N.Y. Apr. 24, 2009) ("Westchester has identified no tangible asset or structure it provided to the United States such that this theory would be applicable; it did not have a contract with the government to build any sort of facility for the government's use or to provide it with goods."). 25 1 In support of this theory, the defendants cite United 2 States v. Hibbs, 568 F.2d 347 (3d Cir. 1977). There, the Third 3 Circuit applied a benefit-of-the-bargain calculation in an FCA 4 case involving the defendants' fraudulent statements to the 5 Federal Housing Administration regarding the condition of various 6 residential properties. 7 agency insured mortgages on several properties, and the agency 8 was required to pay these mortgages when the purchasers 9 defaulted. Relying on these representations, the Id. at 349. 10 The government argued that its damages were the total 11 amount of the mortgage debt it had assumed, insisting that "had 12 [the defendant] not furnished the false certification, it would 13 not have insured the mortgage[s] and therefore would not have 14 been called upon to make any payment." Id. at 351. 15 The Third Circuit rejected this argument. 16 17 18 19 20 21 22 23 24 25 26 27 28 29 The government's actual damage was the decrease in worth of the security that was certified as being available, measured by the difference in value between the houses as falsely represented, and as they actually were. Since the government was given security which was less than what it was represented to be, the damages are essentially similar to those sustained when a defective article is purchased in a fraudulent transaction. In those instances, decisional law sets the damages as the difference in cost between that contracted for and that received. 30 Id. 26 1 Similarly, in Coleman v. Hernandez, 490 F. Supp. 2d 278 2 (D. Conn. 2007), a case involving the so-called "Housing Choice 3 Voucher Program" or "Section 8," under which the government 4 provides housing subsidies to qualifying individuals, the 5 district court declined to award the plaintiff the full amount 6 that the government paid to subsidize her rent, even though her 7 landlord had allegedly made false statements to the government by 8 overcharging the plaintiff for rent. 9 court acknowledged that in other FCA cases, courts had awarded 10 damages equal to the full amount of the government's payment. 11 Id. at 281-82. 12 the awardable damages were equal to the difference between the 13 market rent, and the amount that the landlord charged the 14 government including the additional, improper payments it had 15 received, i.e., the amount of the overcharge. 16 government was then made whole, receiving the full benefit of its 17 bargain - trebled by statute. 18 Id. at 280-83. The Coleman But the court decided that in the case before it, Id. at 282. The The defendants also look to Medicaid and Medicare FCA 19 cases for support. 20 theory of damages, all such cases would result in damages equal 21 to the full amount the government paid in reimbursements to 22 physicians because "the direct benefit always goes to patients." 23 Defs.' Reply Br. at 5. 24 25 They contend that adopting the plaintiff's This is not, however, the methodology generally employed by courts evaluating FCA claims based on Medicaid or 27 1 Medicare fraud. 2 Illinois, Inc., 488 F. Supp. 2d 719 (N.D. Ill. 2007), the court 3 awarded damages based on the difference between the amount of 4 Medicare payments that the defendant should have received, and 5 the amount that it had actually charged the government. 6 739. 7 F. Supp. 2d 877 (M.D. Fla. 2007), the court also held that 8 damages were the "the amount of money the government paid out by 9 reason of the false claims over and above what it would have paid 10 11 In United States ex. rel. Tyson v. Amerigroup Id. at Similarly, in United States ex. rel. Doe v. DeGregorio, 510 out if the claims had not been false." Id. at 890. In short, in each of the cases cited by the 12 defendants, the government paid for a contracted service with a 13 tangible benefit -- whether it be medical care, security on 14 mortgages, or subsidized housing -- but paid too much. 15 government in these cases got what it bargained for, but it did 16 not get all that it bargained for. 17 difference between what the government bargained for and what it 18 actually received as the measure of damages. 19 the government bargained for something qualitatively, but not 20 quantifiably, different from what it received. 21 The Thus, courts treated the Here, by contrast, This approach comports with the one we discussed in 22 making a sentencing calculation of loss in United States v. 23 Canova, 412 F.3d 331, 352 (2005) (rejecting argument that 24 abbreviated medical tests performed by the defendant were as 25 clinically sound as full tests required by Medicare so that the 28 1 government sustained no loss). There, we explained that it was 2 not a court's task to second-guess a victim's judgment as to the 3 necessity of specifications demanded and paid for. 4 ("Whether the testing time on a pacemaker, the number of rivets 5 on an airplane wing, or the coats of paint on a refurbished 6 building is a matter of necessity or whim, the fact remains that 7 the victim has been induced to pay for something that it wanted 8 and was promised but did not get, thereby incurring some measure 9 of pecuniary 'loss.'") See id. To be sure, Canova recognized that "a 10 victim's loss in a substitute goods or services case" does not 11 "necessarily equal[] the full contract price paid." 12 But this was not because a defendant had the right to an offset 13 for the value of the substituted good or service. 14 proper focus of any loss calculation was on "the 'reasonably 15 foreseeable costs of making substitute transactions and handling 16 or disposing of the product delivered or retrofitting the product 17 so that it can be used for its intended purpose,' plus the 18 'reasonably foreseeable cost of rectifying the actual or 19 potential disruption to [the victim's] operations caused by the 20 product substitution." 21 n.8(c)). 22 simply "rewrit[e] the parties' contract to excise specifications 23 paid for but not received and, thereby, conclud[e] that the 24 victim sustained no [or a reduced] loss." Id. at 353. Rather, the Id. (quoting U.S.S.G. § 2f1.1, cmt Canova emphasized that a court calculating loss cannot 29 Id. 1 Canova's reasoning supports the challenged loss 2 calculation. As a result of the fraudulent renewals, the 3 government was paying for a program that was not at all as 4 specified. 5 defendants, the government did not receive less than it bargained 6 for; it did not get the "neuropsychology with a strong emphasis 7 upon research training with HIV/AIDS" program it bargained for at 8 all. 9 secure such a program at any lesser cost. By contrast to the Medicare cases cited by Further, nothing in the record indicates that it could now We therefore conclude 10 that the appropriate measure of damages in this case is the full 11 amount the government paid based on materially false statements. 12 B. Fraudulent Inducement 13 The defendants acknowledge that courts have applied the 14 plaintiff's theory of damages in cases including Mackby, Rogan, 15 and Longhi, but argue that those cases are distinguishable from 16 this one because the defendants in each of those cases obtained 17 funds through fraudulent inducement -- and that any such theory 18 would fail here because no liability was found with respect to 19 the Grant Application. 20 the false statements [that] allow the defendant to obtain the 21 funding in the first place." 22 "In a fraudulent inducement case, [it is] Defs.' Reply Br. at 9. According to the defendants, because a defendant in a 23 fraudulent inducement case would not be eligible for any funding 24 received after the initial false claim, a court in such a case 25 could properly conclude that the defendant is liable for the 30 1 entire amount that the government paid. 2 expressly found that the initial Application contained no false 3 statements, and there was no false certification ever at issue." 4 Id. 5 therefore do not support the damages theory employed by the 6 district court. 7 But "[h]ere, the jury The defendants argue that Mackby, Rogan, and Longhi We see no principled distinction, however, between 8 fraudulently inducing payment initially, thereby requiring all 9 payments produced from that initial fraud to be returned to the 10 government (trebled and with certain fees and costs added as 11 provided by statute), and requiring payments based on false 12 statements to be returned to the government when those false 13 statements were made after an initial contractual relationship 14 based on truthful statements had been established. 15 may be true that under a fraudulent inducement theory, 16 "subsequent claims for payment made under the contract [that] 17 were not literally false, [because] they derived from the 18 original fraudulent misrepresentation, [are also] . . . 19 actionable false claims," Longhi, 575 F.3d at 468 (second 20 brackets in original; internal quotation marks omitted), this 21 proposition simply speaks to the time period for which FCA 22 liability may be found. 23 fraudulent inducement, no subsequent false statements can result 24 in FCA liability. Although it It does not suggest that without 31 1 If the government made payment based on a false 2 statement, then that is enough for liability in an FCA case, 3 regardless of whether that false statement comes at the beginning 4 of a contractual relationship or later. 5 would be that liability begins when the false statement is made 6 and relied upon, rather than at the beginning of the contractual 7 relationship, as it would be in a fraudulent inducement case. 8 Here, the jury found that materially false statements had been 9 made by the defendants in years 3, 4, and 5 of the grant, and the The only difference 10 court properly awarded damages based on that finding. 11 C. 12 Damages as a Matter of Law The defendants argue that the calculation of damages 13 should have been decided as a question of fact by a jury, not as 14 a matter of law by the district court. 15 jury ordinarily does determine the amount of damages to be 16 imposed upon the defendant. 17 conclude, however, that here, where the question is not the 18 benefit of the bargain between the plaintiff and the defendants, 19 and the amount of each payment for which liability has been 20 assessed is not in dispute, no further finding of fact as to the 21 amount of the damages was necessary. 22 Indeed, in FCA cases, the See Chandler, 538 U.S. at 132. We As the government correctly observes in its amicus 23 brief, awarding damages in this manner is not novel. 24 the amount of damages in such cases has been determined as a 25 matter of law in the course of the court's grant of summary 32 And often, 1 judgment to the plaintiff. 2 (affirming summary judgment and damages award); United States v. 3 TDC Mgmt. Corp., 288 F.3d 421, 428 (D.C. Cir. 2002) (agreeing 4 that the district court could properly decide the damages award 5 where the government received no benefit from the transaction). 6 See, e.g., Longhi, 575 F.3d at 461 United States ex rel. Antidiscrimination Center of 7 Metro New York, Inc. v. Westchester County, No. 06 Civ. 2860, 8 2009 WL 1108517, 2009 U.S. Dist. LEXIS 35041 (S.D.N.Y. Apr. 24, 9 2009), is illustrative. There the federal government paid 10 approximately $52 million as part of a federal grant to 11 Westchester County for the purposes of housing and community 12 development. 13 *11. 14 "conduct an analysis of impediments . . . to fair housing choice, 15 including those impediments imposed by racial discrimination and 16 segregation, to take appropriate actions to overcome the effects 17 of any identified impediments, and to maintain records reflecting 18 the analysis and actions." 19 35041, at *2-*3. 20 plaintiff after finding that Westchester County had not conducted 21 the analysis as promised. 22 contention that damages should be the full amount the government 23 paid, and rejected the county's argument that the damages 24 question should be submitted to the jury. 25 United States did not get what it paid for," and there was no Id. at *2-*4, 2009 U.S. Dist. LEXIS 35041, at *5- The grant required the county to certify that it would Id. at *1, 2009 U.S. Dist. LEXIS The court granted summary judgment for the The court agreed with the plaintiff's 33 There, as here, "the 1 role for the jury because "Westchester's damages cannot be 2 reduced by reference to the alleged 'benefit' it provided to 3 HUD." 4 Id. at *3, 2009 U.S. Dist. LEXIS 35041, at *9. We conclude that in the case before us, inasmuch as the 5 damages equal the full amount that the government paid and that 6 amount is not in dispute, they were properly determined by the 7 district court as a matter of law. 8 D. 9 Sufficiency of the Evidence Finally, the defendants contend that the plaintiff did 10 not submit sufficient evidence to the jury to establish by a 11 preponderance of the evidence that the government suffered 12 damages equal to the full amount of the T32 grant. 13 defendants argue that "to prove that the amount of damages was 14 the entire amount of the grant, a relator would be required to 15 prove that the government received no value -- at all -- through 16 the grant work it funded." 17 The Defs.' Br. at 37. The defendants support this contention by citing 18 benefit-of-the-bargain cases. The defendants' argument is 19 therefore unavailing. 20 specific amount of damages must be proved because, as we have 21 explained at length, damages in this case equal the entire amount 22 of the grant that was lost as a result of the fraud. Unlike a benefit-of-the-bargain case, no 23 II. 24 The defendants assert that the false statements to the 25 Materiality government that are at issue were not material to the 34 1 transactions in question. 2 they say, in denying the defendants' motion for judgment as a 3 matter of law and for a new trial.7 4 The district court therefore erred, We conclude that the jury had sufficient evidence from 5 which to conclude, as it did, that the defendants' false 6 statements materially influenced NIH's decisions to renew the T32 7 grant. 8 A motion for a new trial will ordinarily be granted "so 9 long as the district court determines that, in its independent 10 judgment, the jury has reached a seriously erroneous result or 11 [its] verdict is a miscarriage of justice." 12 New York, 414 F.3d 381, 392 (2d Cir. 2005) (internal quotation 13 marks omitted). 14 motion for a new trial for abuse of discretion. Nimely v. City of We review the district court's denial of a Id. 15 A motion for judgment as a matter of law may be granted 16 only "[i]f a party has been fully heard on an issue during a jury 17 trial and the court finds that a reasonable jury would not have a 18 legally sufficient evidentiary basis to find for the party on 19 that issue." 20 a motion cannot assess the weight of conflicting evidence, pass 21 on the credibility of witnesses, or substitute its judgment for 22 that of the jury." Fed. R. Civ. P. 50(a)(1). "A court evaluating such Black v. Finantra Capital, Inc., 418 F.3d 7 For the reasons referred to in note [5], supra, we assume that materiality is required by the pre-2009 version of the FCA, although we need not decide that issue on this appeal. 35 1 203, 209 (2d Cir. 2005) (internal quotation marks omitted). 2 Because such a judgment is made as a matter of law, we review it 3 de novo. 4 favorable to the party against whom the motion was made and . . . 5 give that party the benefit of all reasonable inferences that the 6 jury might have drawn in his favor from the evidence." 7 208-09 (internal quotation marks omitted). 8 9 We must "consider the evidence in the light most Id. at The district court concluded that the plaintiff had "presented significant documentary evidence to support a finding 10 of materiality." 11 Dist. LEXIS 130358, at *5. 12 Feldman IV, 2010 WL 5094402, at *2, 2010 U.S. First, the parties stipulated that in order for a 13 grantee to receive additional funding after the initial grant 14 year, the "grantee must submit a noncompetitive renewal 15 application . . . includ[ing] a progress report which NIH expects 16 will provide information about the trainees['] activities during 17 the previous funding period." 18 instructions for the T32 grant contain a statement explaining 19 that "'Progress Reports provide information to awarding component 20 staff that is essential in the assessment of changes in scope or 21 research objectives . . . from those actually funded. 22 also an important information source for the awarding component 23 staff in preparing annual reports, in planning programs, and in 24 communicating scientific accomplishments to the public and to 25 Congress.'" Id. Second, the renewal They are Id., 2010 U.S. Dist. LEXIS 130358, at *6 (quoting 36 1 NIH Grant Continuation Instructions at 7, J.A. 2462). Third, the 2 renewal instructions direct grantees to "highlight progress in 3 implementation and developments or changes that have occurred. 4 Note any difficulties encountered by the program. 5 changes in the program for the next budget period, including 6 changes in training faculty and significant changes in available 7 space and/or facilities." 8 brackets omitted). 9 describing which, if any, faculty and/or mentors have left the Describe Id. (internal quotation marks and The instructions also ask for "'information 10 program.'" 11 (quoting T32 Program Announcement PA-06-648 at 22, J.A. 2581 12 (June 16, 2006)). 13 Id. at *3, 2010 U.S. Dist. LEXIS 130358, at *6-*7 The district court rejected the defendants' argument 14 that the jury was required to accept Dr. Robert Bornstein's 15 unrebutted testimony on the issue of materiality. 16 Dist. LEXIS 130358, at *7. 17 that reviewed the defendants' initial grant application. 18 trial, he testified as to the factors he considered material to 19 his analysis of a grant application. 20 he reviewed the application, he did not expect that every faculty 21 member identified in the initial grant application would be 22 involved with the fellowship program. 23 did not expect the fellowship program to follow the exact 24 curriculum outlined in the initial application. Id., 2010 U.S. Bornstein was a member of the IRG 37 At He asserted that although He also testified that he The defendants 1 argued that this testimony established that not all false 2 statements in the renewal applications were material. 3 The district court rejected this argument because 4 Bornstein never reviewed the renewal applications, nor did he 5 have an independent recollection of reviewing the initial grant 6 application. 7 court also concluded that "[t]he absence of testimony by a 8 government official supporting a finding of materiality does not 9 mean that the jury was required to accept Bornstein's testimony." Id., 2010 U.S. Dist. LEXIS 130358, at *7-*8. The 10 Id., 2010 U.S. Dist. LEXIS 130358, at *7. 11 within its bounds to credit NIH's unambiguous guidelines and 12 instructions over Bornstein's conclusory testimony that little in 13 the Grant Application really would have mattered to him had he 14 remembered reviewing it at all." 15 130358, at *8. 16 "[T]he jury was well Id., 2010 U.S. Dist. LEXIS On appeal, the defendants do not dispute that the 17 renewal applications contained NIH's instructions and guidelines. 18 They contend instead that "none of these statements, taken 19 individually or together, establish what information was material 20 to NIH's funding decisions on renewals," Defs.' Br. at 47, "the 21 Renewal Instructions and the Program Announcement are silent as 22 to what information matters to NIH for purposes of its funding 23 decision." 24 there is no evidence from which the jury could have decided that Id. at 52. The defendants argue in substance that 38 1 the statements it found to be false materially influenced NIH's 2 decision to renew the T32 grant.8 3 This argument, however, misapprehends the focus of the 4 materiality analysis. In Rogan, the defendant hospital admitted 5 patients through illegal referrals in violation of the Anti- 6 Kickback Act, 42 U.S.C. § 1320a-7b. 7 the violation, the defendant was ineligible to receive Medicare 8 payments. 9 Act, but instead argued that its failure to disclose information 517 F.3d at 452. Because of The defendant did not deny that it had violated the 10 regarding the illegal referrals was immaterial to the 11 government's decision to approve the hospital's Medicare claims, 12 because materiality could only be established if a government 8 The defendants also argue, however, that the district court erred in interpreting NIH's guidelines as "unambiguous" -in other words, that to the extent the plaintiff did point to evidence of materiality, that evidence was insufficient to support a jury verdict. Defs. Br. at 52. The defendants note that the renewal application's instructions do not specify what information needs to be included in a progress report, only that the report should include "difficulties" with or "changes" to a grant program. Id. at 53. The instructions do not explicitly state that grantees must report all changes. Because the NIH guidelines are "necessarily ambiguous," defendants argue that the court cannot rely upon these guidelines as a "legal standard for materiality." Id. But the district court never relied on these guidelines, nor instructed the jury to rely on these guidelines, as a "standard for materiality." The guidelines served instead as evidence that the jury was permitted to rely upon in evaluating what was material to the government in its monitoring of grants. Therefore, we agree with the district court that they provided sufficient evidence from which the jury could reach a conclusion as to materiality. To the extent that these guidelines are ambiguous, it was the jury's function to resolve any disputes about their meaning. 39 1 employee involved in the decision making process testified that 2 the government would have terminated payments. 3 Id. The court rejected this view of materiality, explaining 4 that a "statement or omission is 'capable of influencing' a 5 decision even if those who make the decision are negligent and 6 fail to appreciate the statement's significance." 7 court stated, "[t]he question is not remotely whether [the 8 applicant] was sure to be caught . . . but whether the omission 9 could have influenced the agency's decision." Id. As the Id. 10 In short, even if a program officer does not 11 subjectively consider a statement to be material, it can be found 12 to be material from an objective standpoint because it is 13 "capable of influencing" the program officer. 14 plaintiff in this case argues, materiality is "determined not by 15 what a program officer at NIH declares material, but rather [is] 16 based on the agency's own rules and regulations." 17 48. 18 19 20 21 22 23 24 25 26 27 28 29 30 Id. As the Pl.'s Br. at The Rogan court discussed the purpose of laws prohibiting fraud: Another way to see this is to recognize that laws against fraud protect the gullible and the careless -- perhaps especially the gullible and the careless -- and could not serve that function if proof of materiality depended on establishing that the recipient of the statement would have protected his own interests. The United States is entitled to guard the public fisc against schemes designed to take advantage of overworked, harried, or inattentive disbursing officers; 40 1 2 3 4 5 the False Claims Act does this by insisting that persons who send bills to the Treasury tell the truth. 517 F.3d at 452 (citation omitted). We agree with the plaintiff that the test for 6 materiality is an objective one. It does not require evidence 7 that a program officer relied upon the specific falsehoods proven 8 to have been false in each case in order for them to be material. 9 The fact-finder must determine only whether the proven falsehoods 10 have a "natural tendency to influence, or be capable of 11 influencing, the payment or receipt of money or property." 12 U.S.C. § 3729(b)(4). 13 31 To decide otherwise - that materiality must be 14 established in each case based on the testimony of a 15 decisionmaker - would subvert the remedial purpose of the FCA. 16 The resolution of each case would depend on whether such a 17 decisionmaker could be identified and located, and whether that 18 particular person would have treated the claims as material, 19 regardless of whether they were one of several individuals 20 charged with evaluating the claims at issue. 21 The defendants' contention would also render the 22 language of the statute superfluous. 23 actual decisionmaker could determine whether a statement had a 24 "natural tendency to influence" payment, the statute could have 25 provided that a statement is "material" if it actually influenced 26 a decision maker who was aware of the statement. 41 If no one other than an 1 Our conclusion finds support in other areas of the law. 2 In TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976), for 3 example, the Supreme Court addressed the meaning of "materiality" 4 in the context of a suit brought under the federal securities 5 laws. 6 a "substantial likelihood that a reasonable shareholder would 7 consider it important in deciding how to vote." 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 The Court determined that a fact is "material" if there is Id. at 448. As an abstract proposition, the most desirable role for a court in a suit of this sort . . . would perhaps be to determine whether in fact the proposal would have been favored by the shareholders and consummated in the absence of any misstatement or omission. But as we [have] recognized . . . such matters are not subject to determination with certainty. Doubts as to the critical nature of information misstated or omitted will be commonplace. And particularly in view of the prophylactic purpose of the Rule and the fact that the content of the proxy statement is within management's control, it is appropriate that these doubts be resolved in favor of those the statute is designed to protect. Id. The same reasoning applies here. Like the securities 27 laws at issue in TSC Industries, this objective approach ensures 28 that the FCA serves as a robust prophylactic against fraud by 29 putting the question of materiality to the jury, rather than 30 attempting to trace it back to the state of mind of the 31 decisionmaker. 32 33 In Bustamante v. First Federal Savings & Loan Association of San Antonio, 619 F.2d 360 (5th Cir. 1980), the 42 1 plaintiffs alleged that the defendants violated the Truth-in- 2 Lending Act in a loan transaction. 3 4 5 6 7 8 9 10 11 12 The court noted that when a security interest [with an exception not relevant here] is acquired in real property which is the residence of the person to whom credit is extended, the borrower has a right of rescission within three business days of either consummation of the transaction or "the delivery of the disclosures required under this section and all other material disclosures required under this part, whichever is later . . . ." 13 Id. at 362. 14 than a subjective materiality standard. 15 standard to the test for materiality would misperceive the 16 remedial purpose of the Act." 17 that if materiality could be established by a subjective 18 determination of whether or not particular information would 19 affect a credit shopper's decision to utilize the credit, 20 unsophisticated or uneducated consumers would not be sufficiently 21 protected. 22 Here again, the court applied an objective rather "[T]o apply a subjective Id. at 364. The court concluded Id. Having concluded that the test of materiality in the 23 case before us is objective -- asking what would have influenced 24 the judgment of a reasonable reviewing official -- rather than 25 subjective -- asking whether it influenced the judgment of a 26 reviewer of a proposal in the case at hand -- we agree with the 27 district court that a reasonable jury could have found the 28 defendants' statements to be material to the renewal decisions in 29 the third, fourth, and fifth years of the grant. 43 Based on the 1 stipulations regarding criteria relevant to funding and the 2 testimony at trial, the jury had an ample basis for understanding 3 the grant process based upon which it could determine whether 4 statements that were made or omitted concerning changes to 5 curriculum, personnel and clinical opportunities in the renewal 6 applications had a "natural tendency" to influence NIH's funding 7 decisions. 8 renewal process provided the jury with a clear understanding of 9 what information the NIH considers in evaluating progress 10 reports, such as changes or developments to the program. 11 The instructions regarding the grant application and The defendants did not inform NIH that not all faculty 12 members identified in the initial grant were "key personnel" in 13 the program. 14 several of the core courses listed in the proposed curriculum 15 were never implemented, and that fellows were never evaluated by 16 a training committee. 17 not have access to research and clinical resources described in 18 the initial grant application. 19 fellows had very limited access to HIV positive patients in their 20 research. 21 time working on projects unrelated to HIV, such as research into 22 aging and epilepsy, which was not reported to the NIH. 23 conclude that these facts were more than sufficient to allow a 24 reasonable jury to conclude that had the facts been disclosed 25 they would have had a natural tendency to influence, or would The defendants also failed to inform NIH that NIH was not informed that the fellows did NIH was also not aware that the In addition, many of the fellows spent much of their 44 We 1 have been capable of influencing, the decision to renew the grant 2 and pay money to the defendants pursuant to it. 3 We therefore also conclude that the district court did 4 not abuse its discretion in denying the motion for a new trial -- 5 the jury's verdict was not "seriously erroneous" or "a 6 miscarriage of justice." 7 quotation marks omitted). 8 9 III. Nimely, 414 F.3d at 392 (internal Exclusion of Evidence Demonstrating NIH's Inaction 10 The defendants argue that the district court abused its 11 discretion by excluding evidence of NIH's alleged failure to take 12 remedial action in response to the plaintiff's complaints, and 13 that a new trial is therefore warranted. 14 court's decision to exclude evidence for abuse of discretion. 15 Schering Corp. v. Pfizer Inc., 189 F.3d 218, 224 (2d Cir. 1999). 16 "We [also] review a district court's denial of a motion for a new 17 trial for abuse of discretion." 18 F.3d 91, 101 (2d Cir. 2003), cert. denied, 543 U.S. 823 (2004). 19 We review a district United States v. Brunshtein, 344 The defendants contend that they should have been 20 permitted to elicit evidence of NIH's relative inaction in 21 response to complaints because it is relevant as to whether or 22 not their statements in the renewal applications were false and 23 material. 24 claims and, according to the defendants, the agency saw no 25 validity to the complaints as evidenced by its failure to take Feldman told NIH about the defendants' fraudulent 45 1 action beyond asking Cornell itself to investigate the 2 complaints. 3 to present this evidence to the jury in an effort to persuade it 4 that the statements had not misled the agency. 5 was presented, they say, the plaintiff "could then have put on 6 any rebuttal evidence about why the jury should find the 7 statements were false and material despite NIH's lack of reaction 8 when presented with those allegations." 9 The defendants argue that they should have been able If this evidence Defs.' Br. at 61. Federal Rule of Evidence 402, provides, inter alia, 10 that "[i]rrelevant evidence is not admissible." The district 11 court reasoned that the evidence in question was irrelevant 12 because the NIH's failure to act in response to Feldman's 13 complaints did not speak to the seriousness of those complaints 14 or the likelihood that false claims had been made. 15 not have before it the standard that NIH used to determine 16 whether or not action was warranted in response to a funding 17 complaint. 18 standards these agencies employ to determine the existence of 19 misconduct and whether those standards are at all similar to the 20 elements of an FCA claim." 21 2010 U.S. Dist. LEXIS 73633, at *7. 22 plaintiff's] deposition testimony on the NIH decision, [he] does 23 not, and indeed cannot, speak to the standards NIH used to judge 24 the merits of his claims." 25 standards of the agency were for beginning an investigation, the The jury did "[N]o discovery was conducted concerning the Feldman III, 2010 WL 2911606, at *3, Id. "Specifically, as to [the Without evidence as to what the 46 1 jury could not determine whether the complaints made by Feldman 2 should have instigated one.9 3 at *7-*8. 4 Id., 2010 U.S. Dist. LEXIS 73633, The defendants further argue that to the extent that 5 the district court excluded evidence of NIH's inaction pursuant 6 to Rule 403, it did so in error. 7 inclined to agree with the district court, we need go no further 8 in our analysis because the evidence was properly excluded under While ultimately we would be 9 The defendants point to United States v. Southland Management Corp., 326 F.3d 669 (5th Cir. 2003) (en banc), where the court considered the relevance of the course of conduct between a landlord receiving Section 8 funds and HUD. The court concluded that the communication between HUD and the landlord demonstrated that "HUD was willing to work with the Owners" on remedying maintenance problems, and that "HUD seemed to recognize that the property's noncompliance was at least partially explained by a lack of funds and nearby criminal activity." Id. at 677. Based in part on this pattern of honest and open communication, the court concluded that there could be no FCA liability. Unlike in Southland Management, there is no indication here that the defendants communicated compliance issues to the government or sought its help in addressing them. Where the government acts in response to potential false claims, its activity may reveal something about its understanding as to whether those claims were deliberately false or the result of extrinsic factors, as in Southland Management. But where, as here, there is no evidence of government action, nothing relevant can be ascertained without knowing for which of many possible reasons it did not act. The defendants also cite United States ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148 (2d Cir. 1993), in which we stated that "government knowledge may be relevant to a defendant's liability." Id. at 1157. Indeed it "may be," but is not here where the significance of the knowledge and the responsibilities of the recipients have not been established. 47 1 Rule 402 in any event. 2 discretion. 3 4 5 This conclusion was not an abuse of CONCLUSION For the foregoing reasons, we affirm the judgment of the district court. 48
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