On September 12, 2002, a divided panel of the Sixth Circuit Court of Appeals affirmed an appeal from the Southern District of Ohio, holding that the United States was not precluded from recovering damages from Boeing Co., under the civil False Claims Act ("FCA"), despite a High-Value Items Clause (HVIC) in Boeing's contract that expressly limited contractual liability for damages to high-priced items. Boeing argued that while it remained liable for penalties under the FCA, the HVIC precluded the Government from seeking to recover treble damages under the FCA based on the loss of the destroyed helicopter. In rejecting this argument, the District Court noted that while the Federal Acquisition Regulation (FAR), which includes the HVIC, limited contractor liability for damages, the HVIC should not be interpreted so broadly as to limit liability when the contractor commits a fraud on the Government, and the Government subsequently seeks recovery of its damages under the FCA. The Court of Appeals affirmed the District Court, observing, "we do not read the HVIC as an agreement by the Government to assume the risk of damages to high-value items that it sustains because of FCA violations." A dissent by Judge Boggs countered that the majority opinion is inconsistent with the plain language of the contract. See United States ex rel. Roby v. Boeing Co., No. 00-4157, 2002 WL 31026841 (6th Cir. Sept. 12, 2002).
In 1989, Boeing entered into a contract with the United States Army to remanufacture hundreds of Army helicopters. As part of the rebuild program, Boeing purchased components, such as flight-critical transmission gears, from a subcontractor and installed the components before delivering the finished, rebuilt aircraft to the Army. In 1991, the transmission gears failed in one of the remanufactured helicopters, resulting in the crash of an Army helicopter in Saudi Arabia. In 1995, Relator Brett Roby filed a qui tam action, alleging that Boeing made false statements regarding the manufacture and sale of the defective gear that was installed in the helicopter by Boeing. In its Answer, Boeing asserted numerous affirmative defenses, including the claim that the HVIC barred the Government from seeking damages under the FCA. The Government later filed a motion for partial summary judgment, challenging Boeing's assertion. The District Court granted the Government's motion, but certified the issue for interlocutory appeal. Also certified for interlocutory appeal was the District Court's denial of Boeing's cross-motion for summary judgment, which argued that the Government could not recover damages for the loss of the entire helicopter, only for the individual component that the Government claimed was faulty.
In affirming the District Court, the Court of Appeals observed that the HVIC does not prohibit the recovery of damages under any and all causes of action when the damages are the result of fraud committed by non-managerial personnel. The Court acknowledged that while the Government assumes the risk of loss or damage of a high-value item under an HVIC, the existence of such a clause in a government contract "does not necessarily imply that the Government has self-insured for the damages that result from violations of federal law" such as the FCA. In dismissing Boeing's argument that the Government could not recover damages for the loss of the entire helicopter, the Court observed that the product that Boeing delivered to the Government was a remanufactured helicopter, not a single transmission gear. Applying a "benefit of the bargain" test to measure damages, the court held that the market value of the helicopter as delivered was zero, and that the proper measure of damages was the market value of a remanufactured helicopter.
Judge Boggs dissented from the majority, arguing that an inherent tension exists between the HVIC and the FCA in recovering damages from the contractor. "Put most simply, this case is about the Government trying to do exactly what the plain and obvious wording of its contractual term says it will not do: recover from 'the Contractor' for the 'loss of or damage to property of the Government.'" Countering the policy arguments of the majority, Judge Boggs concluded that allowing the HVIC to preclude recovery by the Government of damages under the FCA did not strip the FCA of all meaning and authority, because the Government could still pursue FCA penalties and seek debarment of the contractor if it believes it has been defrauded.