WASHINGTON (CN) — Honeywell International doesn't have to pay $35 million in treble damages for supplying government contractors with defective materials used to make bulletproof vests, according to a Tuesday ruling from the D.C. Circuit.
The ruling implements the so-called pro tanto rule, a new federal common law rule under the False Claims Act that allows a party to offset its common damages in the amount of the government’s settlements from the other parties when joint "fraudsters" are involved.
"Without a uniform rule, the government would not have a secure baseline against which to negotiate settlements in cases involving multiple defendants and thorny choice-of-law questions. The future liability of settling parties and the government’s ultimate recovery would remain uncertain," wrote U.S. Circuit Judge Neomi Rao, a Donald Trump appointee.
Honeywell argued that it was entitled to this dollar-for-dollar offset because the $36 million the United States has already received through other False Claim Act settlements is greater than its trebled roughly $11.5 million in actual alleged damages, a total of about $35 million.
Under the district court's ruling that has now been reversed, the government could pursue additional statutory damages against Honeywell, bringing the potential total amount recovered to over $68 million, which is six times its alleged loss.
"We recognize that in cases such as this where the government has already recouped its full damages from settling parties, a non-settling party like Honeywell will escape paying damages under the pro tanto rule. Nevertheless, consistent with the FCA, the pro tanto rule leaves the government in the driver’s seat to pursue and punish false claims according to its priorities," Rao wrote for a unanimous three-judge panel.
She added, "The pro tanto rule comports with the FCA because it allows the federal government flexibility to pursue its enforcement priorities. Instead of relying on courts to adjudicate relative responsibility, the government can pursue settlement and/or seek damages against each violator in line with its assessment of relative fault."
According to the circuit judges, the district court's proposal to allocate the settlement offsets between the parties under the proportionate share rule would be "anomalous" for the False Claims Act, because courts would have to determine culpability and base damages on fault and the government could recover more than its total damages.
The ruling could consequently encourage large companies with more litigation resources to delay negotiating settlements in similar suits, in hopes that smaller companies involved will settle out first.
Senior U.S. Circuit Judge Douglas Ginsburg, a Ronald Reagan appointee, and U.S. Circuit Judge David Tatel, a Bill Clinton appointee, rounded out the appeals panel.
Despite its win Tuesday, the multinational conglomerate Honeywell still faces civil penalties from the government in the body armor case, which could exceed $500,000.
The government first sued Honeywell in 2008, accusing the corporation of participating in "a five-year fraudulent scheme against the United States and other participants in the body armor market."
Concealed testing data from Honeywell scientists showed that their anti-ballistic material known as “Z Shield” degraded in high heat and humidity and from exposure to moisture, causing it to lose its ballistic stopping power.
By bounding resin with Zylon fiber purchased from the Japansese textile company Toyobo, Honeywell produced sheets of the Z Shield material and sold them to Armor Holdings Inc., which used the product to create bulletproof vests for U.S. military and law enforcement agencies.
Follow @Megwiththenews
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.
