The US Court of Appeals for the Sixth Circuit reversed the Middle District of Tennessee’s denial of defendant Circle C’s motion for attorney fees and sent the case back for an award of legal fees and expenses related to the trial and appeal of the government’s “excessive” damages demand. The case is United States ex rel. Wall v Circle C Construction, LLC, No. 16-6169 and is before the court for the third time.

Facts: Defendant, Circle C Construction, a family-owned general contractor built 42 warehouses for the United States Army in Kentucky and Tennessee. During the seven years of construction, a subcontractor, Phase Tech, paid two of its electricians about $9,900 less than the wages mandated by the Davis-Bacon Act. As a result, Circle C submitted a number of false “compliance statements” to the government along with its invoices. The government thereafter pursued Circle C for nearly a decade of litigation, demanding not merely $9,900—Phase Tech paid $15,000 up front to settle that underpayment—but rather $1.66 million, of which $554,000 was purportedly “actual damages” for the $9,900 underpayment. The government's theory in support of that demand was that all of Phase Tech's electrical work, in all of the warehouses, was “tainted” by the $9,900 underpayment—and therefore worthless. “The problem with that theory,” wrote the Court in the last appeal, was that, “in all of these warehouses, the government turns on the lights every day.” United States ex rel. Wall v. Circle C Constr., LLC, 813 F.3d 616, 617 (6th Cir. 2016). We therefore reversed a $763,000 judgment in favor of the government and remanded for entry of an award of $14,748—less than 1% of the government's demand.”

Analysis: Following the reduction in damages, Circle C moved for attorneys’ fees under the Equal Access to Justice Act, which provides that if a court awards damages to the government but the government’s original demand for damages was both:

• Substantially in excess of the final judgment, and

• Unreasonable when compared with such judgment, then,

The court must award the defendant the fees and other expenses related to defending against the excessive demand.” 28 U.S.C. § 2412(d)(1)(D). 

The Lower Court rejected Circle C’s request leading to this appeal.

The Sixth Circuit was clear.

It observed that the actual damage to the government was $9,916 in underpayment to electricians and the government faced “strong headwinds—both legal and common-sense—in asserting that its demands” of roughly $554,000 in actual damages and $1.66 million overall, were reasonable. The court noted that the warehouses built were functional and that the government benefited from the work every minute of every day and, therefore, the only damage consisted of the under-payment of two electricians, which violated the minimum wage requirements of the Davis-Bacon Act.

Second, the government warned that a fee award in this case would have a “chilling effect” on its efforts “to vigorously enforce” the False Claims Act. Gov't Br. at 13-14, 37.

The Court’s response: “One should hope so. In this case the government made a demand for damages a hundredfold greater than what it was entitled to, and then pressed that demand over nearly a decade of litigation, all based on a theory that as applied here was nearly frivolous. The consequences for Circle C included nearly a half-million dollars in attorneys' fees. Section 2412(d)(1)(D) makes clear that the government must bear its share of those consequences as well.”

This ruling by the Sixth Circuit suggests that the Equal Access to Justice Act may be of help to deter unreasonable governmental damage requests in future False Claims Act cases.