United States v. United Technologies Corp.

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 15a0062p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________

UNITED STATES OF AMERICA, ┐
Plaintiff-Appellee, │
│
│ No. 13-4057
v. │
>
│
UNITED TECHNOLOGIES CORPORATION, │
Defendant-Appellant. │
┘
Appeal from the United States District Court
for the Southern District of Ohio at Dayton.
No. 3:99-cv-00093—Thomas M. Rose, District Judge.

Argued: December 3, 2014

Decided and Filed: April 6, 2015

BEFORE: SILER and SUTTON, Circuit Judges; CLELAND, District Judge.*

_________________

COUNSEL

ARGUED: Gregory G. Garre, LATHAM & WATKINS LLP, Washington, D.C., for Appellant.
Benjamin M. Shultz, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellee. ON BRIEF: Gregory G. Garre, LATHAM & WATKINS LLP, Washington, D.C.,
Jeffrey A. Hall, BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP, Chicago, Illinois,
David Z. Bodenheimer, CROWELL & MORNING LLP, Washington, D.C., Lori Alvino McGill,
QUINN EMANUEL URQUHART & SULLIVAN LLP, Washington, D.C., for Appellant.
Benjamin M. Shultz, Alan S. Gale, Michael S. Raab, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee.

*
The Honorable Robert H. Cleland, United States District Judge for the Eastern District of Michigan,
sitting by designation.

1
No. 13-4057 United States v. United Technologies Corp. Page 2

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OPINION
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SUTTON, Circuit Judge. In 1983, Pratt & Whitney, now owned by United Technologies,
made false statements to the Air Force in the course of competing with GE Aircraft to supply the
Air Force with engines for its F-15 and F-16 fighter jets. The effort failed in two respects: Pratt
did not achieve its goal of obtaining more business in the first year of the contract, and the fraud
did not go unnoticed.

After discovering the fraud, the government filed two actions against Pratt: (1) a 1998
action before the Armed Services Board of Contract Appeals seeking relief under the Truth in
Negotiations Act, and (2) a 1999 action in federal court seeking relief under the False Claims Act
and common law restitution. The government lost the administrative action. Even though
Pratt’s false statements had violated the truth-in-negotiation requirements of the Act, the Board
refused to lower the price of the contracts retroactively—the remedy permitted by the Act—
because the Air Force had relied on the competitive bids by Pratt and GE Aircraft, not the 1983
false statements, in determining a reasonable price for the jet engine contracts with each
company. The Federal Circuit affirmed.

The federal court action is now on its second trip to this court. The first appeal
established that Pratt violated the False Claims Act and that it owed the government $7 million in
statutory penalties due to the false cost estimates it provided to the government in 1983. The
first appeal also vacated the district court’s holding that the government suffered no damages
from the false statements and asked the court to address three discrete flaws that might (but
might not) affect the damages calculation. On remand, the district court awarded $657 million in
damages.

At stake in this sequel are two essential questions. Does issue preclusion bar the
government from obtaining additional damages under the False Claims Act and common law
restitution given the Board’s finding in the first action about the role of competition in
determining the prices that the government paid Pratt and GE Aircraft for the jet engines? And,
No. 13-4057 United States v. United Technologies Corp. Page 3

even if issue preclusion does not apply, is the district court’s $657 million damages award
supported by the evidence given the government expert’s refusal to account for the competition
between GE Aircraft and Pratt in setting a fair market value for the engines that the government
purchased from Pratt?

I.

Pratt & Whitney makes jet engines. For years, Pratt served as the exclusive supplier of
engines for the Air Force’s F-15 and F-16 fighter jets. That changed in the early 1980s, when the
military decided that competition might improve the quality of the engines and lower their
prices. In 1982, the Air Force invited aerospace manufacturers to submit competitive bids for
making the next generation of engines. In addition to Pratt, GE Aircraft entered the competition.
The Air Force touted the prospect of greater competition. As one officer told Congress, the
bidding put Pratt and GE Aircraft “at each other’s throats.” R. 441-2 at 7. One observer called
the companies’ high-stakes procurement battle the “Great Engine War.” See Editorial, The
Lesson of the Great Engine War, N.Y. Times, Feb. 13, 1984, at A20, available at http://nyti.ms/
1EO4T5h.

In trying to stave off its new competitor, Pratt misstated the projected costs in its 1983
bid in three ways—its bill of materials, its inflation forecasts, and its expected discounts from
suppliers—in an effort to discourage the military from dividing the work between Pratt and GE
Aircraft. After the Air Force identified the problem, Pratt assured the Air Force that it had fixed
the problems in its initial proposal and falsely certified that its offer prices “reflect[ed its] best
estimates and/or actual costs.” R. 334 at 7. The deception backfired in two ways. It did not
work as a business strategy. The Air Force chose to divide the engine orders anyway, and in the
first year of the new six-year contract it purchased three quarters of the engines from GE Aircraft
and only a quarter of the engines from the once-dominant Pratt. The deception also was
uncovered, though not until the end of the contract.

In the interim, the two jet engine manufacturers continued to compete. In each
subsequent year, the Air Force issued a “call for improvement” that asked Pratt and GE Aircraft
to provide more favorable terms than its prior “best and final offer”—a process that allowed each
contractor to decrease its existing offer prices with the hope of selling more engines. The Air
No. 13-4057 United States v. United Technologies Corp. Page 4

Force’s goal was to create, and benefit from, “perpetual competition.” See United Techs. Corp.,
ASBCA No. 53349, 05-1 BCA ¶ 32,860, at 162,813, 2005 WL 147601 (Jan. 19, 2005)
[hereinafter ASBCA II]. Pratt took advantage by responding with lower prices, including by
extending full-award volume discounts even for split-award contracts. In each year, the Air
Force certified that Pratt’s and GE Aircraft’s prices were “fair and reasonable” based on the
“market test between the competitors.” Id. And indeed, as a result of the role of competition in
setting fair prices, the Air Force did not ask Pratt and GE Aircraft to submit cost and pricing data
for each of the five outyears of the contract, as the regulations normally require. See 10 U.S.C.
§ 2306(f)(2) (1982); A.S.P.R. § 3-807.3(b)(ii) (1976). Pratt beat out GE Aircraft with lower
prices in some years (and received additional business as a result), and in the fourth year of the
“call for improvements” Pratt was the “clear winner” overall. R. 441-34 at 2. Air Force
Secretary Edward Aldridge hailed the “intense competition” as “working to perfection.” Id. In
response to Pratt’s improvements, the Air Force awarded the company a steadily increasing share
of engine production. In the final year of the contract, Pratt won nearly two-thirds of the work.

The government first became concerned that Pratt had overstated its 1983 cost
projections in a 1989 audit by the Air Force. For reasons that the record does not fully disclose,
the Air Force review board closed that investigation in 1995. In 1997, Dannie Zacheretti, an
auditor with the Department of Justice and eventually the damages expert in this case,
investigated the matter and determined that Pratt did not use its most accurate data in its 1983
best and final offer.

The Truth in Negotiation Act litigation. In 1998, the government filed an administrative
action against Pratt with the Armed Services Board of Contact Appeals under the Truth in
Negotiations Act. See 10 U.S.C. § 2306(f)(2) (1982). As permitted under the Act, it sought a
retroactive decrease in the price it should have paid for the six years of jet engines due to the
initial false cost estimates. The Board rejected the government’s claim. It first determined that
some of the alleged misstatements—that Pratt had corrected problems in its initial proposal and
had used the latest and most accurate cost data to develop its 1983 best and final offer prices—
did not amount to “cost or pricing data” covered by the Act. See United Techs. Corp., ASBCA
No. 51410, 04-1 BCA ¶ 32,556, at 161,024–25, 2004 WL 483216 (Feb. 27, 2004) [hereinafter
No. 13-4057 United States v. United Technologies Corp. Page 5

ASBCA I]. The Act, the Board noted, covers only misrepresentations about “facts which
reasonably can be expected to contribute to sound estimates of future costs.” Id. at 161,025
(quoting D.A.R. § 3-807.1(a)(1)). The Board held that the Truth in Negotiations Act covered
some of Pratt’s other statements—the inaccurate component-by-component breakdown of its
expected costs, which is to say the underlying cost data itself. See 10 U.S.C. § 2306(f)(2)
(1982). But the Board held that these statements did not cause any damages to the Air Force.
Because the Air Force had relied on “competitive forces, rather than the defective . . . cost or
pricing data . . .[,] to make the awards and to exercise the options for additional purchases,” it
reasoned, the prices the Air Force paid for the jet engines were not increased by the fraud.
ASBCA II, 05-1 BCA at 162,813. The government apparently did not appeal this aspect of the
Board’s decision. See Brief of Appellant, Wynne v. United Techs. Corp., No. 05-1393, 2005 WL
3338206 (Fed. Cir. Nov. 14, 2005). It instead argued that it had no obligation to show that the
Air Force relied on the false cost estimates or that the false statements otherwise caused it
damages. It claimed that the existence of the fraud allowed it to obtain a one-for-one price
reduction for every dollar Pratt overstated its costs. The Federal Circuit rejected this argument
and affirmed. See Wynne v. United Techs. Corp., 463 F.3d 1261, 1267 (Fed. Cir. 2006).

The False Claims Act / Restitution litigation. In 1999, the United States separately filed
this lawsuit in federal district court for violations of the False Claims Act and for common law
restitution. The court found Pratt liable under the False Claims Act and awarded the government
$7 million in statutory penalties. The government sought additional damages caused by the false
statements under the False Claims Act and under several equitable restitution theories: unjust
enrichment, mistake, and quasi-contract. In support of these claims, the government presented
the testimony of Zacheretti, the DOJ auditor who had uncovered the fraud. Zacheretti calculated
the government’s damages on a pro rata basis by comparing the prices Pratt offered the
government with the prices it would have offered the government without the cost
overstatements. He made two key assumptions: (1) Pratt’s cost misstatements resulted in a
dollar-for-dollar overcharge to the government, and (2) all other components of Pratt’s prices
would have stayed proportionally the same with or without the overstatements. Relying on these
assumptions, Zacharetti estimated Pratt’s material costs and added to them based on the
company’s percentage adjustments for overhead, labor, profit, and subsequent discounts. The
No. 13-4057 United States v. United Technologies Corp. Page 6

difference between the resulting prices and what the government actually paid, he concluded,
amounted to its damages. Zacharetti made no mention of fair market value.

The district court rejected the government’s claims for additional damages on the ground
that the false statements did not cause any damages to the government. The court identified
several flaws in Zacharetti’s analysis. It concluded that the Air Force did not suffer any damages
because Pratt’s yearly discounts from its best and final offer in the course of the calls for
improvements process offset any cost overstatements. See United States v. United Techs. Corp.,
No. 3:99-cv-093, 2008 WL 3007997, at *12 (S.D. Ohio Aug. 1, 2008). It also rejected
Zacharetti’s damages methodology because “it ignore[d] the nature” of Pratt’s scheme, which
was designed to skew split-award prices relative to those under a full award, and ignored the
reality that the scheme failed. The Air Force, it observed, declined to give Pratt the full award
and GE Aircraft indeed received three-quarters of the business in the first year of the contract.
Id. at *11. The Court then reasoned:

The Government Calls for Improvement did not request new certifications
of engine prices broken down part-by-part. Instead, engine prices and warranty
prices were rebid on the overall price. The new Government approach of
avoiding sole-source vendors on major acquisitions and creating an atmosphere of
continual competition succeeded in its goal. Had the Government requested a
new BAFO [best and final offer], the Court has no doubt that Pratt, chastened by
its experience of winning just 25% of FEC I, would have certified the lowest
possible engine prices it could manage. Reducing the Government’s damages on
a pro-rata basis over the entire parts list in this instance does not fairly estimate
the Government’s damages. There is no evidence that, had Pratt reduced the parts
affected by its originally fraudulent statements, that commensurate price
reductions could have been won for all engine parts.

Id. at *12 (emphasis added).

The district court also determined that claim preclusion barred the government’s
restitution claims because the Air Force could have, and should have, litigated them before the
Armed Services Board of Contract Appeals. Id. It did not reach Pratt’s separate issue-preclusion
argument that the Board’s competition findings in that litigation bound the parties in the federal
court case.
No. 13-4057 United States v. United Technologies Corp. Page 7

On appeal, we affirmed Pratt’s liability under the False Claims Act and the $7 million
fine levied against it under the Act. See United States v. United Techs. Corp., 626 F.3d 313,
320–21 (6th Cir. 2010). We concluded, however, that the government’s restitution claims were
not barred by claim preclusion because the Board did not have jurisdiction to hear them. Id. at
324–25. At the same time, we asked the court on remand to determine whether one of the
findings by the Board in the administrative action—that the Air Force determined fair and
reasonable prices for the Pratt and GE Aircraft jet engines based on competition, not the cost
estimates covered by the Truth in Negotiation Act—precluded the government from obtaining a
different finding here.

We vacated the district court’s no-damages determination and asked the court to
reconsider three aspects of it. One concern was that the district court gave Pratt full credit for
warranty price reductions without accounting for a corresponding reduction in the extent of the
warranty coverage. Id. at 322. The second concern was that the district court gave Pratt credit
for final-year discounts across the entire contract even though the government never benefitted
from those discounts in prior years. Id. The last concern was that, instead of using “fair market
value” as the benchmark, the court used the original contract prices. Id. We asked the district
court on remand to recalculate damages based on what the government paid above “what it
should have paid for what it received” in terms of “fair market value.” Id. None of this, we
cautioned, necessarily would lead to a different conclusion. “[T]he government is not entitled to
damages,” we pointed out, if Pratt’s prices were equal to or below “fair market value.” Id.

On remand, the government received an upgrade. In addition to the $7 million it had
already obtained in penalties, it was awarded $657 million more in damages—a combination of
treble damages under the False Claims Act, restitution, and prejudgment interest. In reaching
this conclusion, the district court rejected Pratt’s issue-preclusion defense, holding that the Board
and Federal Circuit litigation did not resolve whether Pratt’s three misrepresentations
accompanying its best and final offer caused the government damages. See United States v.
United Techs. Corp., No. 3:99-cv-093, 2012 WL 2263280, at *3–4 (S.D. Ohio June 18, 2012).
The court then adopted the government’s damages calculation in full—premised on Zacharetti’s
unaltered analysis—and rejected Pratt’s arguments that this calculation did not account for the
No. 13-4057 United States v. United Technologies Corp. Page 8

impact of competition on fair market value, including comparable prices paid to GE Aircraft for
its jet engines. United States v. United Techs. Corp., 950 F. Supp. 2d 949, 952–53 (S.D. Ohio
2013). The court concluded that the fighter jet engine market was insufficiently competitive to
rely on comparable sales, but simultaneously found a “free market” for the warranties, adopting
their “arms-length” renegotiated price as their value. Id. at 952, 956.

II.

On appeal from a bench trial, we give fresh review to the district court’s legal
conclusions and defer to its fact findings unless they are clearly erroneous. Pressman v. Franklin
Nat’l Bank, 384 F.3d 182, 185 (6th Cir. 2004). Under the False Claims Act, the government
bears the burden to prove its damages by a preponderance of the evidence. See 31 U.S.C.
§ 3731(c).

III.

When litigation between two parties carries on for seventeen years in two different
venues, it is only a matter of time before it will implicate a foundational objective of a fair legal
system: treating like matters alike. That objective underlies three features of a precedent-bound
system of law—stare decisis, law of the case, and issue and claim preclusion—all of which
require judges to look backward before they resolve current disputes. Stare decisis requires
courts to respect prior decisions of the courts that usually concern different parties but similar
issues. If past is precedent with respect to disputes involving different parties, it follows that past
is precedent with respect to disputes involving the same parties—whether in the context of prior
rulings in the same case (law of the case) or prior rulings in different cases (issue and claim
preclusion). All three doctrines have a role to play in today’s dispute.

A.

Issue preclusion. Up first is issue preclusion. In the Truth in Negotiation Act litigation,
the Board found that the government did not meet its burden of showing that Pratt’s 1983 false
statements caused higher prices for each of the six years of the Pratt–Air Force jet engine
contracts. Does the Board’s finding there—that the Air Force relied on competition between GE
No. 13-4057 United States v. United Technologies Corp. Page 9

Aircraft and Pratt plus the calls-for-improvements process to evaluate the reasonableness of the
two companies’ engine prices—bind us here?

A few basics are in order. To establish issue preclusion, a party must show that: (1) the
question in this case is the same as the one raised in the earlier litigation; (2) the answer given in
the earlier litigation was necessary to the decision; (3) that decision was a final judgment on the
merits; and (4) the affected party had a “full and fair opportunity” to litigate the issue in the prior
litigation. See Kosinski v. C.I.R., 541 F.3d 671, 675 (6th Cir. 2008) (quoting United States v.
Cinemark USA, Inc., 348 F.3d 569, 583 (6th Cir. 2003)). Issue preclusion applies to issues
litigated in prior disputes. It thus makes no difference that the earlier no-damages-due-to-
competition ruling arose in a case under the Truth in Negotiation Act and that this dispute arises
under the False Claims Act and the common law. See Allen v. McCurry, 449 U.S. 90, 94 (1980).
That is why the doctrine goes by the label issue preclusion, not claim preclusion. So long as the
preconditions for issue preclusion exist, the Board’s decisions carry the same preclusive effect as
those of courts and other agencies. See B & B Hardware, Inc. v. Hargis Indus., Inc., No. 13-352,
2015 WL 1291915, at *7 (U.S. Mar. 24, 2015); United States v. Utah Constr. & Mining Co.,
384 U.S. 394, 422–23 (1966) (giving preclusive effect to decisions of a similar agency board of
contract appeals). And so long as the losing party in the first litigation has the opportunity
to appeal the adverse ruling, it matters not whether it does so. See B & B Hardware,
2015 WL 1291915, at *9.

Just two of these considerations concern us here. Does the Board’s finding in the Truth
in Negotiation Act litigation answer the same question presented here? And was the Board’s
answer necessary to its decision? In considering these issues, it helps to separate the findings
with respect to year one of the contract (fiscal year 1985) and those with respect to the
“outyears” of the contract—years two through six of the contract (fiscal years 1986 to 1990).

Year one (fiscal year 1985). Here is what the Board said with respect to year one:

[Pratt] provided evidence—and we so found [in our prior decision]—that neither
the Defense Contract Audit Agency (DCAA), the [Air Force] price analyst, the
contracting officer (CO) nor the cost panel reviewed the BAFO cost or pricing
data prior to award. We believe this evidence rebutted the presumption of
causation.
No. 13-4057 United States v. United Technologies Corp. Page 10

....
We are hard pressed to understand how the [Air Force] could have relied on
BAFO cost or pricing data—defective or otherwise—that no one reviewed.
We are mindful that the [Air Force] price analyst and the CO testified on
direct examination that they relied on the fact that the BAFO data furnished by
appellant were current, accurate, and complete. We find that this testimony—
given roughly 17 years after the fact—was lacking in specificity and was
unpersuasive.
Upon reconsideration, we conclude that the [Air Force] failed to show that
it relied upon Pratt’s BAFO cost or pricing data, and that it failed to show that
[Pratt’s] defective BAFO cost or pricing data caused an increase in contract price
for the base year of the contract. For this reason, the [Air Force] may not recover
on its defective pricing claims for FY 85.

ASBCA II, 15-1 BCA at 162,812–13 (citations omitted).

The Federal Circuit affirmed. But as noted the government did not appeal the Board’s
decision on this point, leaving the above ruling as the relevant one for issue preclusion purposes.
See Guzowski v. Hartman, 849 F.2d 252, 255 (6th Cir. 1988).

Issue preclusion does not apply to the Board’s no-reliance finding with respect to the first
year of the contract. In the truth-in-negotiation litigation, the Board made its no-reliance finding
based on the fact that no one at the Air Force looked at the cost or pricing data behind Pratt’s
offer, not on the role of competition in how the Air Force set fair and reasonable prices.
See ASBCA II, 05-1 BCA at 162,812–13. The Board’s finding in the one case does not exclude
the possibility in the latter case that the government nevertheless relied on Pratt’s separate
misrepresentations that it corrected its proposal and that its best and final offer was based on
accurate cost data. The Board had no authority to review those misstatements because the Act
does not cover falsities about how a contractor arrives at its prices. See ASBCA I, 04-1 BCA at
161,024–25.

Years two through five (fiscal years 1986 to 1990). As to the “outyears” of the
contract—years two through six—the answer is trickier, indeed quite difficult. Here is what the
Board found:

With respect to the awards made, and the options exercised by the [Air
Force] in the outyears—FY 86 through FY 90—neither party disputes that the
No. 13-4057 United States v. United Technologies Corp. Page 11

[Air Force] did not exercise these options at the same terms and conditions
offered by appellant in the BAFO for these options. Rather as we found in our
decision, the [Air Force] sought different and more advantageous offers each year
from appellant and GE—described by the [Air Force] as the annual call for
improvement process—prior to the exercise of each option. Appellant offered
improvements in terms and conditions from its BAFO each year—in some years
offering more generous improvements than others—with the hope of obtaining a
larger share of the work each year. The [Air Force] evaluated the improvements
offered by both competitors, and those improvements the AF decided to accept
were considered by the source selection authority to determine the new allocation
decisions each year.
For each of the outyears, the CO documented the basis upon which he
believed the revised offer from appellant was fair and reasonable. This
determination was made after the [Air Force] had evaluated [Pratt’s] revised offer
in response to the annual call for improvement. The CO prepared a memorandum
for the record each year to document the decision to exercise and to fund each
option. Insofar as pertinent, each memorandum stated as follows:
By a market test between the competitors . . . the prices set
forth . . . are considered the most fair and reasonable prices
available to the Government.
We believe this evidence, properly considered, shows that for the outyears
the [Air Force] relied upon this “market test between the competitors” arising out
of the calls for improvement to determine the reasonableness of [Pratt’s] revised
offers, not the defective BAFO cost or pricing data filed by [Pratt] in December,
1983. A letter from the CO to DCAA dated 10 April 1989 also supports this
conclusion:
[T]his contract is very unique in that it is basically a perpetual
competition using a split award technique decided by the
[Secretary of the Air Force] annually. In this process, the
Contractor’s originally submitted certified Cost or Pricing Data
has been subjected to an annual Call for Improvements letter
requesting improvements in prices as well as terms and conditions.
Over the years, dramatic improvements have been experienced in
almost all areas. [Emphasis added]
This evidence served to rebut the presumption that appellant’s defective
BAFO cost or pricing data were relied upon by the [Air Force] and, as such,
caused an increase in the contract price in the outyears. As we stated earlier, the
[Air Force] has the burden to prove causation. Based upon our reconsideration of
all the evidence of record, we believe that the [Air Force] failed to carry its
burden. The CO in the outyears, Mr. Rhodeback, did not review the December
1983 BAFO cost or pricing data at any time. He relied on the predecessor CO
and the RAA for this purpose. However for reasons stated herein, these latter
No. 13-4057 United States v. United Technologies Corp. Page 12

sources also did not show any review or reliance on the BAFO data, and hence
Mr. Rhodeback’s reliance upon them was without legal significance.
Mr. Rhodeback’s statements of reliance on BAFO cost or pricing data at
trial were unsupported by any contemporaneous project records. Those records of
the CO that were adduced—and that we discussed above—show that competitive
forces, rather than the defective 1983 BAFO cost or pricing data[,] were relied
upon to make the awards and to exercise the options for additional purchases for
FYs 86–90. In the face of such credible, contemporaneous evidence, we believe
that Mr. Rhodeback’s unsupported trial statements to the contrary were
unpersuasive.

ASBCA II, 15-1 BCA at 162,813 (citations omitted). Because the government did not appeal this
aspect of the ruling, the Federal Circuit did not reach it, leaving this aspect of the Board’s
decision untouched.

In one sense, the Board’s competition finding with respect to the last five years of the
contract looks like an eminently appropriate setting for the application of issue preclusion. The
key issue in both cases was nearly identical, and the Board’s relevant finding was necessary to
the outcome. A contract adjustment under the Truth in Negotiations Act requires proof of
reliance—causation—to determine whether the contract prices should be retroactively lowered to
account for any impact that negotiation misstatements had on the final contract price. Wynne,
463 F.3d at 1265. The same is true for damages under the False Claims Act. See 31 U.S.C.
§ 3729(a); United States ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 200 (D.C.
Cir. 1995). And the same is true for the common law restitution claims. See Restatement (Third)
of Restitution and Unjust Enrichment §§ 5(2)(a) & cmt. e, 13 cmt. c (2011); Cleary v. Philip
Morris Inc., 656 F.3d 511, 518–19 (7th Cir. 2011).

The role of competition in the Air Force’s assessment of reasonable prices also was
squarely before the Board and central to its finding of no reliance over the last five years of the
contract. According to the Board, “th[e] evidence . . . shows that for the outyears the [Air Force]
relied upon th[e] ‘market test between the competitors’ arising out of the calls for improvement
to determine the reasonableness of [Pratt’s] revised offers.” ASBCA II, 05-1 BCA at 162,813.
No doubt, the Board might have been clearer on this point. In view of the calls for improvement,
the significant reductions in each company’s offer prices over time, and the vigorous competition
between the two jet engine manufacturers, the Board might have said that competition between
No. 13-4057 United States v. United Technologies Corp. Page 13

the companies exclusively determined the reasonableness of Pratt’s revised offers in the outyears.
Had the Board been this clear, that, it seems to us, would have been that. The competition
finding in the one case would bind us in the other. Nor would it have made a difference that
today’s case concerns false cost estimates not covered by the Truth in Negotiations Act, or that
the government has introduced additional evidence of causation/reliance in this case. Issue
preclusion does not disappear merely because the losing party puts on a better case the second
time around. See, e.g., Yamaha Corp. v. United States, 961 F.2d 245, 254–55 (D.C. Cir. 1992)
(“Preclusion cannot be avoided simply by offering evidence in the second proceeding that could
have been admitted, but was not, in the first.”); Cory v. C.I.R., 159 F.2d 391, 392 (3d Cir. 1947)
(“[P]arties are not entitled to have a question considered on its merits a second time merely
because they failed to produce all the facts the first time.”); Falconer v. Meehan, 804 F.2d 72, 76
(7th Cir. 1986) (explaining that issue preclusion applies “even if in the prior action a different
legal theory was argued” and prevents the second court from “deciding the same factual issues
that were decided earlier”); see also Akron Presform Mold Co. v. McNeil Corp., 496 F.2d 230,
234–35 (6th Cir. 1974) (rejecting new evidence to establish violation of antitrust laws in second
action).

But the Board was not that clear—and indeed less clear than the above language read by
itself suggests. The quoted language does not appear by itself. The full sentence is comparative
in nature: It says that the evidence “shows that for the outyears the [Air Force] relied upon th[e]
‘market test between the competitors’ arising out of the calls for improvement to determine the
reasonableness of [Pratt’s] revised offers, not the defective BAFO cost or pricing data filed by
[Pratt] in December, 1983.” ASBCA II, 05-1 BCA at 162,813 (emphasis added). A few
sentences down, the Board states its competition finding in comparative terms again: It says that
“competitive forces, rather than the defective [December] 1983 BAFO cost or pricing data[,]
were relied upon to make the awards and to exercise the options for additional purchases.” Id.
(emphasis added). Nor can we rely on a sentence in the first Board decision that describes a
1984 letter from the Air Force saying that the contracts were awarded “solely” on a competitive
basis. ASBCA I, 04-1 BCA at 161,013. In neither its first decision nor its reconsideration
decision did the Board rely on this letter as a ground for decision. The letter at most would relate
No. 13-4057 United States v. United Technologies Corp. Page 14

to damages for year one, moreover, and the Board (as shown) plainly did not rely on this letter in
discussing damages for year one.

As this case comes to us, then, it is not clear whether the Board meant to say that
competition together with the calls for improvement process exclusively drove prices or merely
whether those competitive forces eliminated any damages caused only by the December 1983
false cost data. In the first setting, issue preclusion would apply. In the second setting, it would
not, for it would remain possible that other types of falsities at other times could have affected an
assessment of reasonable prices even in the face of these competitive forces. Because issue
preclusion forever precludes litigation with respect to a covered finding, courts err on the side of
construing prior ambiguous findings or holdings narrowly. See, e.g., Connors v. Tanoma Mining
Co., 953 F.2d 682, 684 (D.C. Cir. 1992) (“If the basis of [a] decision is unclear, and it is thus
uncertain whether the issue was actually and necessarily decided in that litigation, then
relitigation of the issue is not precluded.”); In re Braniff Airways, Inc., 783 F.2d 1283, 1289 (5th
Cir. 1986) (“[I]f reasonable doubt exists as to what was decided in the first action, the doctrine of
res judicata should not be applied.”); Harris v. Jacobs, 621 F.2d 341, 343 (9th Cir. 1980) (“If
there is doubt on this score, collateral estoppel will not be applied.”). That, it seems to us, is a
sensible way to resolve this difficult question here. We thus affirm the district court’s conclusion
that issue preclusion does not bar the government’s damages claims under the False Claims Act
and common law restitution.

B.

False Claims Act and Restitution. That the Board’s competition finding does not bind us
here does not mean that the competition between GE Aircraft and Pratt and the calls for
improvement process were irrelevant to the government’s claim for damages under the False
Claims Act and common law restitution based on a similar set of misstatements. Yet that, at the
government’s urging, is just what the district court held. The court relied exclusively on
Zacharetti’s price estimates as the value of Pratt’s engines and yet Zacharetti, an auditor and not
a pricing expert, refused to consider either the role that competition between Pratt and GE
Aircraft (among other factors) played in determining reasonable and fair prices, or whether that
competition and the prices that resulted from it eliminated any damages to the government.
No. 13-4057 United States v. United Technologies Corp. Page 15

That was wrong for several reasons. In the first place, it misreads our prior opinion. We
asked the district court after the last appeal to redo its damages calculations to address three
discrete flaws in its analysis that the government suffered no damages, and to determine the “fair
market value” of the engines independent of the fraud:

On remand, the district court should calculate what the government eventually
paid each year . . . , what it should have paid each year based on what the
government received, then take the difference between the two. If the court
concludes that Pratt’s prices . . . represent the fair market value of the fighter jet
engine contract—or were below fair market value—the government is not entitled
to damages.

United Techs., 626 F.3d at 322. At the same time, we cautioned the district court that its second
assessment of the government’s claims, after correcting for the three identified flaws, might well
lead to its first conclusion in this area (and the Board’s conclusion to boot): that no damages
resulted in view of the critical role that competition played in setting prices. For law of the case
purposes, our prior decision did not require the district court to find damages; did not require the
district court to use (much less follow) Zacharetti’s analysis; did not require the court to exclude
expert testimony from Pratt about reasonable and fair prices in this context; indeed did not
require the court to abandon any part of its earlier conclusion save to consider how the three
identified flaws might affect whether the government suffered any damages.

In the second place, our opinion did not undermine several factual findings in the district
court’s initial opinion. In that opinion, it found, as the Board had found, that competition
affected prices due to the significant discounts Pratt offered each year of the contract from its
best and final offer in the course of the calls for improvements process. See United Techs., 2008
WL 3007997, at *12. It found that Zacharetti’s damages methodology, in addition to failing to
account for the role of competition in pricing, “ignore[d] the nature” of Pratt’s scheme—to skew
split-award prices relative to those under a full award—which failed. Id. at *11. Not only did
the Air Force decline to give Pratt the full award, but GE Aircraft received three-quarters of the
business in the first year of the contract. Id. And it found “no doubt that Pratt, chastened by” its
failure to obtain a full award, had offered the lowest prices it possibly could from then on—
namely the last five years of the contract—because the government had successfully “creat[ed]
an atmosphere of continual competition.” Id. at *12. We are hard pressed to understand how
No. 13-4057 United States v. United Technologies Corp. Page 16

these findings—all about the role of competition and the calls for improvement process—were
altered by our opinion or remain any less true today.

In the third place, our opinion broke no new ground in asking the court to consider the
“fair market value” of the Pratt engines after accounting for the three flaws in its prior analysis.
When the government gets what it paid for despite a contractor’s misstatements, it has suffered
no “actual damages.” See United States v. Bornstein, 423 U.S. 303, 316 n.13 (1976) (collecting
cases); see also United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d
908, 923 (4th Cir. 2003). That is not just the law of the False Claims Act; it is also the black-
letter law of fraud and restitution (putting aside disgorgement of profits, which the government
does not seek here). See Restatement (Second) of Torts § 549(1)(a) (1977); Restatement (Third)
of Restitution and Unjust Enrichment §§ 49 cmt. f, 54 cmts. g–h (2011). The only benchmark
consistent with this benefit-of-the-bargain theory of damages is “fair market value,” by which we
meant (and still mean) “what a willing buyer would pay in cash to a willing seller at the time.”
United States v. 564.54 Acres of Land, 441 U.S. 506, 511 (1979) (internal quotation marks
omitted).

With that traditional definition comes the traditional rules for proving value. “A
‘comparable sales’ analysis has long been and remains the preferred method of
establishing . . . ‘fair market value.’” United States v. 103.38 Acres of Land, 660 F.2d 208, 211
(6th Cir. 1981). Indeed, the government itself has relied on that analysis to prove damages in
False Claims Act cases. See, e.g., United States v. Killough, 848 F.2d 1523, 1531 (11th Cir.
1988). The comparable sales valuation method applies even though the market for fighter jet
engines is heavily regulated (many markets are), it has two sellers, and it results in few sales per
year. Restatement (Second) of Torts § 911 cmt. f (1979). Fighter engine sales are hardly so rare
that they fall into the narrow exception for public goods like “roads or sewers.” United States v.
50 Acres of Land, 469 U.S. 24, 30 n.12 (1984) (quoting 564.54 Acres of Land, 441 U.S. at 513);
see Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1055 (9th Cir. 1983) (noting
“the competitive nature of the military aircraft industry”). GE Aircraft’s engine prices are thus a
natural place to look for evidence of the value the government received. The only question is
whether those engines are adequately comparable to Pratt’s.
No. 13-4057 United States v. United Technologies Corp. Page 17

The Air Force’s procurement strategy in this instance proves they are. The premise of the
“head to head” competition was that the two companies’ engines were similar. R. 441-3 at 18.
That is why the Air Force directly compared the engine prices side-by-side, put on the table split-
award bids and full-volume bids, and judged those prices “fair and reasonable” based on the
“market test between the competitors.” ASBCA II, 05-1 BCA at 162,811. And—as we noted the
last time around, as the district court noted the last time around, and as we think remains highly
relevant this time around—the Air Force never requested new cost and pricing data during the
annual calls for improvements. United Techs., 626 F.3d at 321; United Techs., 2008 WL
3007997, at *12. For such high-dollar and otherwise significant contract modifications, only
“adequate price competition” could excuse that failure—as the government’s own regulations
explain. See 10 U.S.C. § 2306(f)(2) (1982); A.S.P.R. § 3-807.3(b)(ii) (1976).

What happened each year of the procurement process confirms as much. In the opening
year of this multi-year contract, the rival companies made “best and final offers” to the Air Force
for their jet engines. Those offers, as it turns out, were neither the “best” nor the “final” offers
made by either company. The government ultimately never paid any of them. In each
subsequent year, the Air Force issued “calls for improvements” to each competitor, a pencil-
sharpening exercise that allowed the rivals to lower prices (Pratt did so every year) in return for
the hope of obtaining a larger share of the Air Force’s business (Pratt gained more business in
some years, and GE Aircraft gained more in other years). Nor did the calls for improvement lead
to marginal improvements. Pratt made substantial decreases to its best and final offer prices.
According to the district court’s uncontested numbers, Pratt’s combined engine and warranty
price discounts were as follows: $101 million (1986), $100.5 million (1987), $106.7 million
(1988), $114.5 million (1989), and $63.4 million (1990). See United Techs., 2008 WL 3007997,
at *8. Pratt even applied some discounts retroactively to first year prices. ASBCA I, 04-1 BCA
at 161,014–15. While these decreases do not account for other terms of the offers (including
reduced warranty coverage in some years), they make it crystal clear that this was not
competition in the abstract but competition in fact. All of this reliance on price competition—
echoing the Board’s prior finding in the context of the same sales, the same competition, the
same procurement process, and the same types of inaccurate data from 1983—belies any claim
that GE Aircraft’s engines are so dissimilar they cannot serve as comparable sales for purposes
No. 13-4057 United States v. United Technologies Corp. Page 18

of calculating damages. The district court accordingly erred by “presum[ing] that the amount
overpaid is equal to the fraudulent amount quoted.” United Techs., 950 F. Supp. 2d at 952.

One other flaw in the district court’s analysis bears mention. It miscalculated the fair-
market value of the newly capped warranties by finding their value precisely equal to their
renegotiated prices, resulting in no damages offset for its price reductions. See id. at 955–56.
Because Pratt’s original scheme was to offset engine cost overstatements with artificially low
warranty prices under a full award, see United Techs., 2008 WL 3007997, at *11, the district
court’s methodology does not fit the fraud. One premise of the scheme was to sell the engines
and warranties as a package. Valuing the warranties in isolation thus does not work. The
government argued the last time around that the district court had erred by “treat[ing] the
separate warranty prices and engine prices as if they were one combined price.” See Brief of
Appellant, United States v. United Techs. Corp., Nos. 08-4256/4257, 2008 WL 5707433 (6th Cir.
Feb. 25, 2009). We rejected that argument and affirmed the district court’s analysis, for
otherwise it would have made no sense for us to instruct the court to account for the value of the
corresponding decrease in coverage. And that is why we remanded for the district court to
recalculate “the fair market value of the fighter jet engine contract”—as a whole—not merely the
engines. United Techs., 626 F.3d at 322 (emphasis added). The proper course was to measure
fair market value of the contract as a bundle, beginning with GE Aircraft’s prices and adjusting
for material differences.

The government seeks to uphold the district court’s decision in several ways. First, it
defends the district court’s presumption that, when someone defrauds the government, each
dollar of overstated costs translates into a dollar of damages. See United States ex rel. Taxpayers
Against Fraud v. Singer Co., 889 F.2d 1327, 1333 (4th Cir. 1989); Universal Restoration, Inc. v.
United States, 798 F.2d 1400, 1403 (Fed. Cir. 1986). But the district court never applied any
such presumption in its first decision—in rejecting Zacharetti’s damages calculation—and we
did not reverse that part of its decision in the first appeal. How the presumption suddenly
appeared on remand is something of a mystery.

Be that as it may, we do not see how the presumption, even if we were to accept it in the
context of a competitive, as opposed to sole source, contract, see Singer, 889 F.2d at 1333,
No. 13-4057 United States v. United Technologies Corp. Page 19

justifies the district court’s decision on remand. The cases permit a party to rebut the inference
of damages. Three steps, not one, describe the process: (1) The government starts with the
presumption; (2) the private party may rebut it; and (3) if the private party succeeds in rebutting
the presumption, the burden returns to the government to show by a preponderance of the
evidence that it was injured by the false statements. See Sylvania Elec. Prods., Inc. v. United
States, 479 F.2d 1342, 1349 (Ct. Cl. 1973). If that sounds familiar, that is because it is what the
Federal Circuit held in rejecting the government’s claim for damages against Pratt under the
Truth in Negotiation Act in the administrative action. Wynne, 463 F.3d at 1267 (“[T]he Air
Force has not demonstrated that the Board erred in finding that UTech successfully rebutted the
presumption of causation.”). Just as Pratt rebutted the presumption there by showing that no one
relied on the relevant false statements and that competition controlled prices, so Pratt has
rebutted that presumption here. As the above evidence shows, the Air Force’s reliance on
competition to determine a reasonable price readily rebuts any such presumption.

One other point on this score. Zacharetti’s damages analysis was before us in the last
appeal. See Brief of Appellant, United States v. United Techs. Corp., Nos. 08-4256/4257, 2008
WL 5707433 (6th Cir. Feb. 25, 2009). In concluding that the government had suffered no
damages under any of its federal-court claims in the first instance, the district court rejected
Zacharetti’s damages assessment. United Techs., 2008 WL 3007997, at *11. Nothing in our
prior opinion contradicted that analysis. To the contrary, we cautioned that the reassessment of
damages after correcting for three targeted mistakes might still lead to a zero-damages
conclusion. See United Techs., 626 F.3d at 322. That possibility could not co-exist with a
wholesale acceptance of the Zacharetti analysis, the dollar-for-dollar premise of which would
never lead to zero damages.

Second, the government argues that Pratt forfeited any objection to the district court’s
“factual finding” that GE Aircraft’s engines are not comparable. Appellee Supplemental Br. at
2. Whether forfeited or not, the government adds, that finding is entitled to deference. See
United States v. 2,635.04 Acres of Land, 336 F.2d 646, 649 (6th Cir. 1964). But the district court
made no such finding. Nowhere did it compare the characteristics of the two engines. The court
instead rejected GE Aircraft’s prices as a matter of law—a decision deserving no deference—
No. 13-4057 United States v. United Technologies Corp. Page 20

based on the limited number of players in the market, infrequent sales, and GE Aircraft’s costs of
market entry, all legally irrelevant to comparability. United Techs., 950 F. Supp. 2d at 952; see
VFB LLC v. Campbell Soup Co., 482 F.3d 624, 632 (3d Cir. 2007) (“[T]he proper method of
valuation in a particular factual context is a legal question.” (emphasis omitted)). Pratt
repeatedly argued in its opening brief that the district court erred by ignoring “conventional
measures of value” such as “comparable sales.” See Appellant Br. at 3, 27–29, 39. And in its
reply, Pratt properly responded to the government’s contention that GE Aircraft’s engines were
insufficiently comparable. Compare Appellee Br. at 32, with Reply Br. at 17–19. No forfeiture
occurred.

Third, the government maintains that regulations promulgated under the Truth in
Negotiations Act establish that cost plus a reasonable profit is the way prices necessarily work in
this area. Zacheretti’s method thus honors this requirement better than a comparable-sales
analysis, the argument goes, because it simply removes the overstatement. Not true. This
argument overstates the force of the regulations. Pratt remained free to charge whatever it
wanted. The Air Force did not conduct a “cost-plus” procurement for the engines, with prices set
by Pratt’s eventual costs and a predetermined profit margin. “[N]o case or regulation” required
any party to base prices on Pratt’s cost data. United States ex rel. Williams v. Martin-Baker
Aircraft Co., 389 F.3d 1251, 1257 (D.C. Cir. 2004). Had this been a cost-plus-reasonable-profit
contract, Pratt would have been required to submit new cost data for the outyears, but the Air
Force never asked for it. The Truth in Negotiation Act’s disclosure requirements no doubt gave
the government the upper hand in negotiations by providing a window into a contractor’s cost
structure. Hence Pratt’s acknowledgment that its prices could be no higher than “expected cost,
plus a reasonable profit.” R. 344 at 146–47; R. 397 at 4. But this merely prompts—it does not
answer—the question of what profit margin the market could reasonably support, which requires
looking at GE Aircraft’s comparable prices, among other things. And those prices internalize the
regulations, as is true in every regulated market. A comparable sales approach hardly involves a
fictional market free of regulation, as the government suggests. No case says otherwise. In
United States v. Commodities Trading Corp., 339 U.S. 121 (1950), and United States v.
Cartwright, 411 U.S. 546 (1973), the Supreme Court adopted prices directly set by regulation as
No. 13-4057 United States v. United Technologies Corp. Page 21

the measure of value. No such regulations exist here. Prices turned on negotiation, and as such a
comparison between GE Aircraft’s and Pratt’s prices was the place to start.

Fourth, the government argues that GE Aircraft’s engine sales are not comparable
because its prices too were tainted by Pratt’s fraud. The taint argument works only if the
evidence shows that Pratt’s prices were inflated by fraud. That of course is the question that,
after two rounds of appeals and counting, we are still trying to figure out. The answer begins
with comparable sales, if not potentially other indicators of value as well: the government’s own
price estimates at the time; prior sales by Pratt; and foreign resales of the engines. So far, the
government has come up short with evidence that meets its burden of proof of showing that, after
considering comparable sales (among other factors), it suffered any damages.

Amen v. City of Dearborn, 718 F.2d 789 (6th Cir. 1983), says nothing to the contrary.
We held that the City could not prove the value of a taking by using prices of comparable
property that its own takings had depressed. Id. 799–800. That decision makes sense because
the City’s actions unquestionably diminished the property’s inherent value. Put another way, the
resulting sales were not truly “arms length” transactions, Welch v. Tenn. Valley Auth., 108 F.2d
95, 101 (6th Cir. 1939), because the City’s actions were “designed to force residents . . . to sell
their property to the City.” Amen, 718 F.2d at 795. Here, the impact of Pratt’s fraud on the
prices of its jet engines is hardly self-evident—just ask the Armed Services Board—making it
appropriate to consider comparable sales, here GE Aircraft’s prices, if not other factors as well.

Fifth, the government argues that GE Aircraft had unique costs of market entry, and its
engines were physically different from Pratt’s—making a comparable-sales analysis unhelpful.
The notion that GE Aircraft’s market entry costs defeat comparability proves too much. Why
then set prices based on competition, as the Air Force plainly did? “The proper test” of
comparability “is the similarity in character” of the engines—and that similarity was the premise
of the Air Force’s company-to-company competition. Knollman v. United States, 214 F.2d 106,
109 (6th Cir. 1954). This unclothed assertion about GE Aircraft’s market entry costs at any rate
may reveal less than one might expect. After all, GE Aircraft Engines was not a start-up making
a debut in constructing jet engines, but rather had been producing engines (albeit different
models) for years.
No. 13-4057 United States v. United Technologies Corp. Page 22

The engines’ physical differences do not warrant ignoring GE Aircraft’s global prices
either. The two engine models had differences, to be sure. Modifications to the F-15 would
have been necessary to install the GE Aircraft engines. And the manufacturers’ engines had
“different thrusts,” “airflows,” and “weights.” R. 330 at 149. But “comparable” in this context
“does not mean identi[cal].” 103.38 Acres, 660 F.2d at 211 (quoting Fairfield Gardens, Inc. v.
United States, 306 F.2d 167, 172–73 (9th Cir. 1962)). “Completely comparable sales are not
likely to be found. Sales that have some different characteristics must be considered. . . . [The
court] should not dismiss fairly comparable sales out of hand because of certain incomparable
qualities.” Piney Woods Country Life Sch. v. Shell Oil Co., 726 F.2d 225, 239 (5th Cir. 1984)
(footnote omitted). These differences do not make GE Aircraft’s sales irrelevant for purposes of
calculating damages, as the Air Force has acknowledged from 1983 on. Before Congress, Col.
Jim Nelson testified that Pratt’s and GE Aircraft’s engines have “essentially equal capabilities
and either engine will satisfy system requirements.” R. 441-3 at 6. An internal Air Force memo
likewise confirmed that “[b]oth engines are being developed and tested to the same basic
requirements.” R. 446-5 at 2. And the 1984 source selection touted that “both [are] excellent
engines and are fully acceptable for both the F-15 and F-16 aircraft. There are no overriding
technical advantages to either engine in [terms of] overall capability.” R. 443-25 at 1. Most
importantly, the Air Force’s direct comparison of the engine prices proves GE Aircraft’s sales
were comparable. Otherwise, the comparison does not make sense. The proper approach was to
start with GE Aircraft’s prices and make adjustments for any material differences between the
engines.

***

What now? We are tempted to say that, after seventeen years of litigation about a fraud
that occurred thirty-two years ago, the time has come to end this dispute. The government
proved its case under the False Claims Act and will be $7 million richer as a result, as we
established in the last appeal. After we remanded the case, the government had every
opportunity to put on an expert to show whether competition affected its damages. It not only
refused to do so, but it also successfully objected to Pratt’s own efforts to put on a pricing expert.
On this record, there is something to be said for leaving it at that. The government had the
No. 13-4057 United States v. United Technologies Corp. Page 23

burden of proving damages, and it never did. At the same time, we are a court of review, not
first view. See 28 U.S.C. § 1291. The district court presided over the remand litigation, and it is
in the best position to decide in the first instance whether the government should have another
opportunity to prove that it suffered damages even after accounting for the role of competition in
setting prices for Pratt’s engines.

For these reasons, we reverse the district court’s judgment and remand the case for
further proceedings consistent with this opinion.