United States v. Science Applications International Corp.

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 21, 2010 Decided December 3, 2010

No. 09-5385

UNITED STATES OF AMERICA,
APPELLEE

v.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION,
APPELLANT

Appeal from the United States District Court
for the District of Columbia
(No. 1:04-cv-01543)

Theodore B. Olson argued the cause for appellant. With
him on the briefs were Matthew D. McGill, Amir C. Tayrani,
Ryan J. Watson, Richard O. Duvall, Jennifer A. Short,
Lawrence E. Ruggiero, and John P. Rowley III.

Robin S. Conrad, Amar D. Sarwal, James J. Gallagher,
and Susan A. Mitchell were on the brief of amicus curiae the
Chamber of Commerce of the United States of America in
support of appellant.

Jessie K. Liu, David A. Churchill, and Matthew E. Price
were on the brief of amicus curiae the National Defense
Industrial Association in support of appellant.
 2

Thomas M. Bondy, Attorney, U.S. Department of Justice,
argued the cause for appellee. With him on the brief were
Ronald C. Machen Jr., U.S. Attorney, and Douglas N. Letter,
Attorney. R. Craig Lawrence, Assistant U.S. Attorney,
entered an appearance.

Before: SENTELLE, Chief Judge, TATEL and GRIFFITH,
Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: In this case a jury found, among
other things, that appellant, a major government contractor,
violated the False Claims Act (FCA), 31 U.S.C. § 3729, by
seeking payments at the same time it knew it was violating
contractual provisions governing potential conflicts of
interest. On appeal, the contractor principally argues that no
liability may attach for its claims for payment because its
contract nowhere designated compliance with these conflict
of interest requirements as express conditions of payment. As
we explain in this opinion, however, requests for payment can
be “false or fraudulent” under the FCA when submitted by a
contractor that has violated contractual requirements material
to the government’s decision to pay regardless of whether the
contract expressly designates those requirements as conditions
of payment. We nonetheless vacate the judgment as to FCA
liability and remand for a new trial because the district court’s
“collective knowledge” instruction conflicted with the FCA’s
scienter standard, the proper application of which is critical to
ensuring that FCA liability attaches only for false or
fraudulent claims and not for accidental or even negligent
breaches of contract.
 3
I.
The Nuclear Regulatory Commission (NRC) is an
independent federal agency that regulates the civilian use of
nuclear materials. Pursuant to its general authority, the NRC
oversees the release into interstate commerce of commercially
valuable recycled radioactively contaminated materials from
nuclear facilities. Companies wishing to release such
materials must obtain an NRC license and comply with
license restrictions. Beginning in the mid-1980s, however,
the NRC sought to establish standards for unrestricted release
by setting contamination levels that were below “regulatory
concern.” Am. Compl. ¶ 11. After the NRC’s initial efforts
encountered Congressional and public opposition, the agency
commenced new studies aimed at developing scientific
criteria that could inform a future rulemaking to set uniform
national standards on the recycling and release of radioactive
materials.

Appellant Science Applications International Corporation
(SAIC), a scientific, engineering, and technology applications
company, entered into a contract with the NRC in 1992 to
provide technical assistance and expert analysis to support the
agency’s potential rulemaking. SAIC performed multiple
tasks under the contract, delivering several reports, including
both a literature review and a regulatory options paper that the
NRC published in 1999. In the options paper, SAIC
calculated radiological dose assessment estimates for
materials recycled and released from nuclear facilities. In
1999, SAIC and the NRC executed a follow-on contract to
allow the company to continue its work in support of the
agency’s rulemaking.

The 1992 and 1999 contracts included several provisions
designed to identify and prevent potential conflicts of interest.
Because the two contracts are substantially identical for all
 4
purposes relevant to this litigation, we shall refer only to the
1992 contract. SAIC’s contract imposed limitations on the
company’s ability to “work for others” during the contract
term. Specifically, SAIC agreed to “forego entering into
consulting or other contractual arrangements with any firm or
organization, the result of which may give rise to a conflict of
interest with respect to the work being performed under [the]
contract.” If SAIC had “reason to believe with respect to
itself or any employee that any proposed consultant or other
contractual arrangement with any firm or organization may
involve a potential conflict of interest,” the contract obliged
SAIC to obtain the NRC’s prior written approval. The
contract also included disclosure obligations that required
SAIC to “warrant[] to the best of its knowledge and belief”
that it had no “organizational conflicts of interest” and would
make “an immediate and full disclosure in writing” if it
discovered such conflicts after the contract award. In the
event SAIC disclosed a conflict, the contract required it to
provide a mitigation strategy, but the NRC retained the right
to terminate the contract if doing so was “in the best interest
of the government.” The contract defined organizational
conflicts of interest by reference to NRC regulations, which in
turn defined an organizational conflict of interest as follows:

a relationship . . . whereby a contractor or
prospective contractor has present or planned
interests related to the work to be performed under
an NRC contract which: (1) May diminish its
capacity to give impartial, technically sound,
objective assistance and advice or may otherwise
result in a biased work product, or (2) may result in
its being given an unfair advantage.

41 C.F.R § 20-1.5402(a) (1979).
 5
In addition, the contract required SAIC to make several
“representations” and “certifications.” SAIC certified that its
contract award resulted in none of the “situations or
relationships” outlined in 41 C.F.R. § 20-1.5403(b) (1979).
That regulation, now codified at 48 C.F.R. § 2009.570-3(b),
lists the following situations or relationships that give rise to
conflicts:

(i) Where the . . . contractor provides advice and
recommendation to the NRC in a technical area in
which it is also providing consulting assistance in the
same area to any organization regulated by the NRC.

(ii) Where the . . . contractor provides advice to the
NRC on the same or similar matter on which it is
also providing assistance to any organization
regulated by the NRC.

....

(iv) Where the award of a contract would otherwise
result in placing the . . . contractor in a conflicting
role in which its judgment may be biased in relation
to its work for the NRC, or would result in an unfair
competitive advantage . . . .

The contract also provided that “[t]he nondisclosure or
misrepresentation of any relevant interest may . . . result in the
disqualification of the [contractor] for awards[,] or if
nondisclosure or misrepresentation is discovered after the
award, the resulting contract may be terminated.”

During the term of the 1992 contract, SAIC and the NRC
agreed to several modifications, and each time the company
certified that the modification involved none of the above
situations or relationships. SAIC repeated this certification in
 6
the 1999 contract. Critical to the issue before us, the pre-
printed payment vouchers that the NRC required SAIC to
submit for work performed under the contracts contained no
express certifications, nor did anything in either contract
expressly condition payment on such a certification.

At an open NRC meeting in October 1999, a member of
the public charged that SAIC was involved in projects with
for-profit companies that potentially created prohibited
organizational conflicts of interest with respect to SAIC’s
NRC work. Responding to this allegation, the NRC asked
SAIC to provide information about the company’s other work
in the area of nuclear recycling. Based on SAIC’s disclosure
of its existing contracts with two companies—British Nuclear
Fuels, Ltd. (“British Nuclear”) and the Bechtel Jacobs
Company (“Bechtel Jacobs”)—the NRC determined that
SAIC had, without proper disclosure, placed itself in
potentially conflicting roles. The NRC informed SAIC of this
determination and ordered the company to stop working on
the 1999 contract. The parties subsequently entered into a no-
cost settlement terminating that contract.

The United States brought suit against SAIC, raising two
claims under the False Claims Act. First, the government
charged SAIC with knowingly submitting false or fraudulent
claims for payment in violation of 31 U.S.C. § 3729(a)(1) by
continuing to submit payment invoices after the conflicting
relationships arose. Second, the government alleged that
SAIC knowingly made false statements to get false or
fraudulent claims paid or approved in violation of 31 U.S.C.
§ 3729(a)(2) when the company certified to the NRC not only
that it had no organizational conflict of interest relationships,
but also that it would immediately inform the NRC if such
relationships developed. The government also brought a
claim for breach of the 1992 contract.
 7
The government’s FCA causes of action focused on
SAIC’s business relationships with contractors participating
in a project to decommission and decontaminate buildings at a
Department of Energy (DOE) site in Oak Ridge, Tennessee.
DOE contracted with British Nuclear in 1997 to work on this
project, and British Nuclear then engaged SAIC to serve as a
subcontractor. Although work performed at DOE’s facilities
was subject only to DOE oversight, the government argued
that SAIC’s relationship with British Nuclear created a
potential conflict because the project involved the recycling
and release of radioactive materials that would become
subject to NRC regulation after leaving the DOE facility and
entering into interstate commerce. In addition, one of British
Nuclear’s other subcontractors on the project, its wholly-
owned subsidiary Manufacturing Science Corporation (MSC),
was licensed under NRC standards by the state of Tennessee.
In 1999, SAIC also performed consulting work for Bechtel
Jacobs, another contractor DOE employed on the Oak Ridge
project. SAIC helped Bechtel Jacobs with a dose assessment
and performed a cost-benefit analysis regarding the recycling
of radioactively contaminated materials from the site. The
government contended that SAIC’s work for Bechtel Jacobs
closely overlapped with the company’s work for the NRC, as
illustrated most starkly by the allegation that a company
employee copied material from a report prepared for the NRC
and pasted it into one for Bechtel Jacobs.

Beyond SAIC’s work relating to DOE’s Oak Ridge
decommissioning and decontamination project, the
government alleged that SAIC possessed other undisclosed
potential conflicts. For example, the government pointed out
that SAIC Vice President Gerald Motl participated in the
company’s work for the NRC while at the same time serving
as an officer and board member of the Association of
Radioactive Metal Recyclers (ARMR), a trade association
 8
that advocated for national regulatory standards governing the
reuse and recycling of radioactive materials.

SAIC moved for summary judgment on the government’s
FCA and breach of contract claims, which the district court
denied. In doing so, the district court rejected SAIC’s
argument that the government failed to present evidence that
the company’s submissions for payment qualified as false
claims under the FCA. See United States v. Science
Applications Int’l Corp. (“Science Applications I”), 555 F.
Supp. 2d 40, 49–51 (D.D.C. 2008). Although the district
court recognized that SAIC’s payment invoices themselves
made no factually false statements about the services
performed and contained no false express certifications of
compliance with legal requirements, it nonetheless concluded
that the government could proceed on a theory of “implied
false certification” because it had presented unrebutted
evidence that SAIC’s allegedly false certifications of
compliance with no-conflict requirements “constituted
‘information critical to the [government’s] decision to
pay[.]’ ” Id. at 50 (quoting United States v. TDC Mgmt. Corp.
(“TDC II”), 288 F.3d 421, 426 (D.C. Cir. 2002) (alterations in
original)). In so holding—and setting the stage for the central
issue before us—the court rejected SAIC’s argument that the
implied certification theory requires the government to show
that compliance with the contractual conflict of interest
provisions is an express condition precedent to the receipt of
payment. See Science Applications I, 555 F. Supp. 2d at 49–
51. The district court also found that the government had
offered sufficient evidence to create triable issues as to
whether SAIC submitted false claims and made false
statements in support of those claims “knowingly,” as well as
whether the government had suffered actual damages as a
result of the alleged false claims and statements. See id. at
54–56.
 9
Following a four-week trial, the jury found SAIC liable
under FCA sections 3729(a)(1) and 3729(a)(2) and for breach
of its 1992 NRC contract. Specifically, the jury determined
that SAIC had “knowingly presented or caused to be
presented sixty false or fraudulent claims for payment or
approval by the government” and had “knowingly made,
used, or caused to be made or used seventeen false records or
statements to get a false or fraudulent claim paid or approved
by the United States government.” See United States v.
Science Applications Int’l Corp. (“Science Applications II”),
653 F. Supp. 2d 87, 94 (D.D.C. 2009). Based on the district
court’s instruction, the jury concluded that the government
suffered FCA damages of $1,973,839.61—the full amount of
payments made by the government for the claims the jury
concluded were knowingly false. Pursuant to FCA section
3729(a), the district court then trebled this amount and added
an additional $577,500 in civil penalties. As to the
government’s breach of contract claim, the jury awarded only
$78. The district court entered final judgment in the amount
of $6,499,096.83.

SAIC moved for judgment as a matter of law under
Federal Rule of Civil Procedure 50(b) and in the alternative
sought a new trial under Rule 59(a). See id. at 92. As is
relevant to this appeal, SAIC argued (1) that the government
failed to prove that the company submitted false claims under
an implied certification theory because the record contained
no evidence that payment under the contract was expressly
conditioned on SAIC’s compliance with organizational
conflict of interest obligations, (2) that the evidence precluded
the jury from finding, as it did, that SAIC acted “knowingly”
under the FCA when it submitted false claims and statements
because SAIC’s belief that it had no conflicts as defined by
the applicable contractual provisions and regulations was
reasonable, (3) that various jury instructions were erroneous
 10
and prejudicial, including an instruction that the jury could
find that SAIC possessed knowledge based on the “collective
knowledge” of its employees, and (4) that the government
failed to prove that it suffered any damages from SAIC’s false
claims, and in the alternative that the district court’s damages
instruction was erroneous and prejudicial. See id. at 95–99,
102–04, 107–09.

The district court rejected each argument. With respect
to implied certification, the court reiterated its earlier holding
that this theory of liability has no express condition precedent
requirement. Id. at 102–03. The court therefore concluded
that its instruction to the jury that “[a] claim for payment or a
statement made in order to get payment is false if there is a
withholding of information that is critical to the government’s
decision to pay” accurately stated the law of this circuit. Id. at
103. The court also found sufficient record evidence to
support the jury’s determination that SAIC’s false
representations that it had no conflicts of interest were critical
to the government’s decision to pay. In support, it pointed to
testimony by NRC and SAIC employees describing the
importance of the company’s organizational conflict of
interest obligations to the overall contract and indicating that
the NRC would have withheld payments under the contract
had it been aware of SAIC’s undisclosed potential conflicts of
interest. Id. As to scienter, the district court concluded that
the record contained sufficient evidence to have allowed the
jury to infer that SAIC’s false claims and statements were
made knowingly, either on the basis of actual knowledge of
undisclosed organizational conflicts or as a result of reckless
disregard for or deliberate ignorance of the truth. Id. at 96–
99. In particular, the court found that “SAIC knew that it had
relationships with entities . . . that were subject to the
regulations of the NRC, regardless of whether these entities
were doing other work for DOE excluded from the NRC’s
 11
regulatory authority.” Id. at 97. The court also found
reasonable the government’s use of a “collective knowledge”
theory to help establish scienter, explaining that its instruction
was appropriate “because the jury could have properly
inferred SAIC’s fraudulent intent from its collective
knowledge.” Id. at 98–99. Finally, the district court upheld
the jury’s FCA damages award and rejected SAIC’s challenge
to the instruction. Under the government’s theory of
proximate causation, the court explained, had the NRC known
about SAIC’s organizational conflicts, it would have made no
payments whatsoever for the consulting advice and technical
assistance it received. Accordingly, the court concluded, the
actual value of SAIC’s work was “irrelevant.” See id. at 108–
09.

SAIC now appeals, seeking judgment as a matter of law
with respect to liability on all causes of action and with
respect to FCA damages. Alternatively, it urges us to vacate
the district court’s judgment and remand for a new trial on all
claims. In support, SAIC reasserts each of the arguments
discussed above and objects to various other jury instructions,
as well as to the constitutionality of the damages award under
the Eighth Amendment’s Excessive Fines Clause.

II.
As the False Claims Act existed at the time of the
conduct giving rise to this litigation, the statute imposed
liability on any person who

(1) knowingly presents, or causes to be presented, to
an officer or employee of the United States
Government or a member of the Armed Forces of the
United States a false or fraudulent claim for payment
or approval; [or] (2) knowingly makes, uses, or
causes to be made or used, a false record or
 12
statement to get a false or fraudulent claim paid or
approved by the Government.

31 U.S.C. § 3729(a)(1)–(2) (2008). The FCA defines claim
broadly to include “any request or demand, whether under a
contract or otherwise, for money or property which is made to
a contractor, grantee, or other recipient if the United States
Government provides any portion of the money or property
which is requested or demanded.” Id. § 3729(c). The key
statutory terms “knowing” and “knowingly” are in turn
defined to include a defendant’s “actual knowledge,”
“deliberate ignorance,” or “reckless disregard” of the truth or
falsity of information in the defendant’s claim for payment or
statements made to get such claims paid. Id. § 3729(b).

Following trial in this case, Congress amended the FCA
by enacting the Fraud Enforcement and Recovery Act of 2009
(“FERA”), Pub. L. No. 111-21, 123 Stat. 1617. In response to
SAIC’s post-trial motions in the district court, the government
argued that the amended version of the statute applies
retroactively. Disagreeing, the district court concluded that
“FERA has no impact on the present action.” See Science
Applications II, 653 F. Supp. 2d at 107. On appeal, although
the government still maintains that the district court erred by
failing to give retroactive effect to the 2009 amendments, it
nonetheless assures us that the issue “has no bearing on the
outcome of this case.” Appellee’s Br. 53. Taking the
government at its word, we shall assume the correctness of
the district court’s decision on this point and henceforth refer
only to the FCA’s pre-2009 language.

“False claims” under the FCA take a variety of forms. In
the paradigmatic case, a claim is false because it “involves an
incorrect description of goods or services provided or a
request for reimbursement for goods or services never
 13
provided.” Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001).
Here, the government’s case relies on the so-called
“certification theory” of liability, or alternatively “legally
false certification.” See id. at 696–97. Under this theory, a
claim for payment is false when it rests on a false
representation of compliance with an applicable federal
statute, federal regulation, or contractual term. See id. at 696.
False certifications can be either express or implied. Courts
infer implied certifications from silence “where certification
was a prerequisite to the government action sought.” United
States ex. rel. Siewick v. Jamieson Sci. & Eng’g, Inc., 214
F.3d 1372, 1376 (D.C. Cir. 2000).

This circuit has endorsed the implied certification theory,
albeit implicitly. See id.; United States. v. TDC Mgmt. Corp.
(“TDC I”), 24 F.3d 292, 296–97 (D.C. Cir. 1994) (allowing
the government to bring an FCA claim based on information
omitted from a company’s progress reports). Although SAIC
calls the implied certification theory a “novel, judicially
crafted expansion of the FCA,” Appellant’s Br. 23, its
argument actually assumes the theory’s validity and instead
seeks to limit its scope. Specifically, SAIC contends that
liability may attach under the implied certification theory
“only where a statute, regulation, or contractual provision
makes compliance with a requirement an express condition
precedent to payment.” Id. By contrast, the government
argues—and the district court agreed—that a government
contractor runs afoul of the FCA by submitting claims for
payment while knowing that it violated contractual provisions
that are material to the government’s decision to pay. See
Science Applications I, 555 F. Supp. 2d at 49–50.

According to the government, we can resolve this case in
its favor without deciding whose theory of implied
 14
certification is correct. Its two arguments in support of that
proposition, however, are unconvincing.

The government first points to the jury’s finding that
SAIC made seventeen express false statements of compliance
with its contractual conflict of interest obligations, contending
that “[t]hese express . . . representations are plainly sufficient
in and of themselves to give rise to [FCA] liability.”
Appellee’s Br. 23. This argument rests on a
misunderstanding of the FCA’s structure. Knowingly false
statements are indeed separately actionable under FCA
section 3729(a)(2), but only if the contractor used the
statements “for the purpose of getting ‘a false or fraudulent
claim paid or approved by the Government.’ ” Allison Engine
Co. v. United States ex rel. Sanders, 553 U.S. 662, 671 (2008)
(quoting 31 U.S.C. § 3729(a)(2)); see also United States v.
Southland Mgmt. Corp., 326 F.3d 669, 675 (5th Cir. 2003) (en
banc) (“Although § 3729(a)(2) prohibits the submission of a
false record or statement, it does so only when the submission
of the record or statement was done in an attempt to get a
false claim paid. There is no liability under [the FCA] for a
false statement unless it is used to get a false claim paid.”).
Therefore, as the district court recognized, because the actual
claims for payment submitted by SAIC were accurate reports
of services rendered that made no reference to whether the
company had complied with organizational conflict of interest
requirements, and because the government has never argued
that SAIC’s separate express contractual certifications were
themselves “request[s] or demand[s] for money” so as to fall
within the statute’s definition of “claims,” see 31
U.S.C. § 3729(c), the government must prove that SAIC’s
claims for payment were impliedly false for either FCA cause
of action to succeed. See Science Applications I, 555 F. Supp.
2d at 49–50 (“Neither party contends that invoices submitted
for payment by SAIC were either factually false or that they
 15
contained express false certifications; the issue is whether the
government can show that SAIC made implied false
certifications in submitting its invoices to the NRC.”).

Second, the government believes that even if SAIC’s
narrower version of implied certification is correct, the
government’s evidence satisfies that standard because federal
law makes compliance with conflict of interest obligations an
express condition precedent to NRC contract awards and
hence to the receipt of payments under those contracts. The
NRC’s legal responsibility to evaluate and avoid (or at least
mitigate) potential conflicts of interest before entering into
contracts certainly helps demonstrate the importance of
honest and complete conflict of interest disclosures to the
agency. But the statute the government refers to, 42 U.S.C.
§ 2210a(a)–(b), imposes obligations only on the NRC and
nowhere requires that, in order to be eligible for payment, an
NRC contractor must inform the agency if it has developed
any potential conflicts of interest.

To resolve this case, we must therefore decide whether an
FCA plaintiff may state a cause of action against a federal
contractor who fails to disclose the violation of a contractual
condition that is material to the government’s decision to pay
where, as here, that condition is not an express prerequisite to
payment. Both parties argue that this question is controlled
by circuit precedent. Both are wrong.

SAIC insists that we adopted an express condition
precedent requirement in Siewick, where we held that “false
certification of compliance with a statute or regulation cannot
serve as the basis for [an FCA action] unless payment is
conditioned on that certification.” 214 F.3d at 1376. But
SAIC’s interpretation divorces Siewick from its facts. In that
case, a qui tam relator—i.e., a private FCA plaintiff—alleged
 16
that a government contractor submitted a false claim by
seeking payment while one of its officers was in violation of a
criminal statute, 18 U.S.C. § 207, that prohibits “revolving
door” abuses by former government employees. The contract
in Siewick made no mention of section 207, so in sharp
contrast to the facts of this case, compliance with the legal
requirement the defendant supposedly violated was never
recognized as a contractual obligation. See Siewick, 214 F.3d
at 1376 (“Siewick points to nothing suggesting that [the
contractor] was required to certify compliance with [section]
207 as a condition of its contract.”). As a result, we had no
need in Siewick to resolve the question we face here, which
involves a government contract that did require the contractor
not only to warrant that it had no organizational conflicts of
interest as defined by applicable regulation, but also to
immediately disclose if such conflicts arose during the course
of its performance under the contract.

For its part, the government thinks that we endorsed its
theory of implied certification in TDC II. There, we found
“culpable” a company that failed to disclose in progress
reports to the government that it violated the terms of a
program by taking a financial position rather than serving as
an impartial ombudsman between participating companies
and private investors. See 288 F.3d at 422, 426. To be sure,
as the government points out, we favorably quoted the
proposition that “ ‘[t]he withholding of . . . information . . .
critical to the decision to pay [] is the essence of a false
claim.’ ” Id. at 426 (quoting Ab-Tech Constr., Inc. v. United
States, 31 Fed. Cl. 429, 434 (1994)). We said this, however,
only to explain our refusal to review an error the defendant
failed to raise in the district court. In determining that no
“ ‘plain miscarriage of justice’ ” would flow from our
enforcing the defendant’s waiver, id. at 425 (quoting Hormel
v. Helvering, 312 U.S. 552, 558 (1941)), we had no need to
 17
determine the proper scope of the implied certification theory.
Indeed, neither party in TDC II even briefed the question of
whether the implied certification theory requires the
identification of an express condition precedent to payment
before liability can attach. In other words, nothing in TDC II
resolves the issue before us.

Thus untethered by precedent, we must determine the
proper scope of the implied certification theory. According to
SAIC, a claim can be false under the implied certification
theory only if the government contractor violates legal
requirements that are expressly designated as preconditions to
payment. Of course, nothing in the statute’s language
specifically requires such a rule, and we fear that adopting
one would foreclose FCA liability in situations that Congress
intended to fall within the Act’s scope. Cf. S. Rep. No. 99-
345, at 9 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5274
(stating the position of the Senate Judiciary Committee that
claims for payment for “goods or services . . . provided in
violation of contract terms” constitute false claims under the
Act). For example, under SAIC’s theory, no FCA liability
would attach where a government contractor (1) knows that it
violated a contractual requirement, (2) recognizes that
compliance with that requirement is material to the
government’s decision to pay (even though the contract
nowhere formally identifies the condition as a payment
prerequisite), and (3) submits claims for payment that omit
any mention of the requirement while knowing that were the
violation disclosed, no payment would be forthcoming.
Under this scenario, the contractor would escape FCA
liability because the absence of an express condition
precedent to payment would prevent the fact-finder from
judging the company’s claim to be false despite the
contractor’s knowledge that its ability to receive payments
from the government depended on withholding information
 18
about its non-compliance with a key contractual provision.
We decline to create such a counterintuitive gap in the FCA
by imposing a legal requirement found nowhere in the
statute’s language.

Instead, we hold that to establish the existence of a “false
or fraudulent” claim on the basis of implied certification of a
contractual condition, the FCA plaintiff—here the
government—must show that the contractor withheld
information about its noncompliance with material contractual
requirements. The existence of express contractual language
specifically linking compliance to eligibility for payment may
well constitute dispositive evidence of materiality, but it is
not, as SAIC argues, a necessary condition. The plaintiff may
establish materiality in other ways, such as through testimony
demonstrating that both parties to the contract understood that
payment was conditional on compliance with the requirement
at issue.

The logic of our conclusion is perhaps best illustrated by
way of an example freed from the complexities of this case.
Consider a company that contracts with the government to
supply gasoline with an octane rating of ninety-one or higher.
The contract provides that the government will pay the
contractor on a monthly basis but nowhere states that
supplying gasoline of the specified octane is a precondition of
payment. Notwithstanding the contract’s ninety-one octane
requirement, the company knowingly supplies gasoline that
has an octane rating of only eighty-seven and fails to disclose
this discrepancy to the government. The company then
submits pre-printed monthly invoice forms supplied by the
government—forms that ask the contractor to specify the
amount of gasoline supplied during the month but nowhere
require it to certify that the gasoline is at least ninety-one
octane. So long as the government can show that supplying
 19
gasoline at the specified octane level was a material
requirement of the contract, no one would doubt that the
monthly invoice qualifies as a false claim under the FCA
despite the fact that neither the contract nor the invoice
expressly stated that monthly payments were conditioned on
complying with the required octane level.

Stripped of its intricacies, the government’s case against
SAIC is no different. In our hypothetical, the government
contracted to purchase gasoline of a certain octane, and here
the government contracted to buy conflict-free advice and
technical assistance. Just as the claims for payment for
nonconforming gasoline were false, here the claims for
nonconforming counseling and technical assistance were false
so long as the government can establish that conflict-free
services were a material condition of the contract.

Although the proper scope of the implied certification
theory is somewhat unsettled in the circuits, the Tenth Circuit
employs the same materiality approach that we now adopt.
See United States ex rel. Lemmon v. Envirocare of Utah, Inc.,
614 F.3d 1163, 1169 (10th Cir. 2010) (“[F]alse certification—
regardless of whether it is implied or express—is actionable
under the FCA only if it leads the government to make a
payment which, absent the falsity, it may not have made.”);
id. at 1170 (concluding that the qui tam plaintiff successfully
stated an FCA claim by alleging regulatory violations that
“also constituted material breaches of . . . contractual
obligations”); Shaw v. AAA Eng’g & Drafting, Inc., 213 F.3d
519, 531–32 (10th Cir. 2000) (holding that a company’s
monthly invoices for photography services were false because
the company implicitly certified that it met contractual
obligations to recover and dispose of trace silver according to
Environmental Protection Agency guidelines). The Ninth
Circuit has likewise held that “[i]mplied false certification
 20
occurs when an entity has previously undertaken to expressly
comply with a law, rule, or regulation, and that obligation is
implicated by submitting a claim for payment even though a
certification of compliance is not required in the process of
submitting the claim.” Ebeid ex rel. United States v.
Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010).

By contrast, the Second Circuit has recognized an express
condition precedent requirement for implied certification—
although it did so in a substantially different situation that, as
in Siewick, involved the violation of no contractual
requirement. See Mikes, 274 F.3d at 700. Indeed, the Second
Circuit largely confined its reasoning to claims by medical
providers under Medicare guidelines, as the court worried that
broad application of the FCA in that setting would operate as
an inappropriately “blunt instrument to enforce compliance
with all medical regulations.” Id. at 699–700; see also United
States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166,
1177 (9th Cir. 2006) (recognizing that “the Mikes court was
dealing with the Medicare context, to which the court
specifically confined its reasoning”). Given the context-
specific setting of the Second Circuit’s decision, its concerns
have no applicability to the case before us, which involves
SAIC’s alleged violation of regulatory requirements actually
incorporated into its contract and which implicates none of
the federalism concerns involved in Mikes. True, the Second
Circuit has subsequently applied the Mikes standard outside
the Medicare context, see United States ex rel. Kirk v.
Schindler Elevator Corp., 601 F.3d 94, 115 (2d Cir. 2010),
cert. granted, 2010 WL 3116440 (U.S. Sept. 28, 2010) (No.
10-188), but we are unaware of any decision in that circuit
rejecting an FCA claim where, as the government alleges
here, the defendant sought payment after knowingly violating
a material requirement of its contract.
 21
Even though we have rejected SAIC’s effort to cabin the
implied certification theory, we fully understand the risks
created by an excessively broad interpretation of the FCA. As
SAIC compellingly points out, without clear limits and
careful application, the implied certification theory is prone to
abuse by the government and qui tam relators who, seeking to
take advantage of the FCA’s generous remedial scheme, may
attempt to turn the violation of minor contractual provisions
into an FCA action. In our view, however, instead of
adopting a circumscribed view of what it means for a claim to
be false or fraudulent, this very real concern can be
effectively addressed through strict enforcement of the Act’s
materiality and scienter requirements. In the following pages,
we discuss each of these requirements and explain why record
evidence of materiality and scienter leads us to affirm the
district court’s denial of SAIC’s motion for judgment as a
matter of law on the government’s FCA claims, as well as on
the government’s breach of contract claim.

Materiality
To establish FCA liability under an implied certification
theory, the plaintiff must prove by a preponderance of the
evidence that compliance with the legal requirement in
question is material to the government’s decision to pay. By
enforcing this requirement rigorously, courts will ensure that
government contractors will not face “onerous and unforeseen
FCA liability” as the result of noncompliance with any of
“potentially hundreds of legal requirements” established by
contract. Appellant’s Reply Br. 12. Payment requests by a
contractor who has violated minor contractual provisions that
are merely ancillary to the parties’ bargain are neither false
nor fraudulent.

In this case, however, record evidence could have
allowed the jury to conclude that the contract’s conflict of
 22
interest provisions were far from minor. As the district court
explained, “[n]umerous witness[es] from both the NRC and
SAIC testified that the [organizational conflict of interest]
obligations in SAIC’s contracts with the NRC were important
to the overall purpose of the contract.” Science Applications
II, 653 F. Supp. 2d at 103. NRC contracting officers and
specialists also testified that had they been aware of SAIC’s
apparent or actual conflicts, such as its relationships with
British Nuclear and Bechtel Jacobs, they would not have
awarded the two contracts, nor would they have made
payments under those contracts. Id.

Scienter
Strict enforcement of the FCA’s scienter requirement will
also help to ensure that ordinary breaches of contract are not
converted into FCA liability. Cf. Shaw, 213 F.3d at 532–33
(endorsing the implied certification theory and explaining that
the Act’s scienter requirement limits liability to cases where
the contractor knew its certification of compliance was false).
For example, FCA section 3729(a)(1) imposes liability only
when a person “knowingly presents, or causes to be presented
. . . a false or fraudulent claim.” Establishing knowledge
under this provision on the basis of implied certification
requires the plaintiff to prove that the defendant knows (1)
that it violated a contractual obligation, and (2) that its
compliance with that obligation was material to the
government’s decision to pay. If the plaintiff proves both,
and does so based on the proper standard for knowledge—
which as we explain below excludes “collective
knowledge,” see infra Part III—then it will have established
that the defendant sought government payment through
deceit, surely the very mischief the FCA was designed to
prevent. Cf. Cook County v. United States ex rel. Chandler,
538 U.S. 119, 129 (2003) (explaining that in adopting the
FCA, “Congress wrote expansively . . . ‘to reach all types of
 23
fraud, without qualification, that might result in financial loss
to the Government’ ” (quoting United States v. Neifert-White
Co., 390 U.S. 228, 232 (1968))).

In this case, having challenged the materiality theory for
implied certification, SAIC never addresses whether the
record is sufficient to support a jury verdict that it knew
adherence to contractual conflict of interest requirements was
critical to the government’s decision to pay. Instead, SAIC
vigorously argues that the evidence was insufficient to
support the jury’s conclusion that whatever certifications of
compliance it did make were false. According to SAIC, it
reasonably believed that its work with DOE contractors posed
no potential conflicts and led to none of the “situations or
relationships” described in NRC regulations. See 41 C.F.R.
§ 20-1.5403(b) (1979). In support, SAIC points to the
existence of a long-recognized “regulatory divide,”
Appellant’s Br. 6–7, between the NRC and DOE under which
prime-DOE contractors are exempt from NRC licensing
requirements for work performed at DOE sites owned by the
government, see 42 U.S.C. § 2140(a); 10 C.F.R. §§ 30.12,
40.11, 70.11. SAIC also highlights statements made at public
meetings by NRC personnel confirming that the NRC lacks
licensing authority over work performed at DOE facilities.
SAIC dismisses the probative value of other conflicts alleged
by the government, such as Vice President Motl’s
participation in ARMR, calling it “manifestly absurd to assert
that SAIC intentionally or recklessly made false certifications
of conflict-of-interest compliance” on the basis of a single
employee’s membership in a trade association. Appellant’s
Br. 41.

To be sure, record evidence does support SAIC’s
contention that any false certifications the company made
resulted from reasonable mistakes. The record, however, also
 24
supports a contrary view. For example, trial testimony could
support a jury conclusion that SAIC employees knew that the
company, in violation of NRC conflict of interest regulations
to which it certified compliance, was “providing consulting
assistance” to organizations “regulated by the NRC” on issues
relating to the recycling and clearance of radioactively
contaminated materials that were the subject of SAIC’s work
for the NRC. See 41 C.F.R. § 20-1.5403(b)(1)(i)–(ii) (1979).
Specifically, several employees acknowledged at trial that
British Nuclear and MSC intended to sell materials recycled
from DOE’s Oak Ridge facility and that such contaminated
materials would be subject to NRC regulation once released
into general commerce. As the district court found, such
evidence “could tend to discredit SAIC’s argument that its
alleged false statements were the result of its belief that the
entities with which it had relationships were entities wholly
excluded from NRC regulation,” and could instead permit
“reasonable jury inferences that SAIC knew that it had
relationships with entities . . . that were subject to the
regulations of the NRC, regardless of whether these entities
were doing other work for the DOE excluded from the NRC’s
regulatory authority.” Science Applications II, 653 F. Supp.
2d at 96–97. Public statements by NRC officials on which
SAIC relies do nothing to undermine this inference. Those
officials stated that because the NRC regulated neither DOE
itself nor DOE facilities, none of NRC’s conflict of interest
policies applied to DOE. That fact, however, is entirely
undisputed. Moreover, at one of the public meetings SAIC
references, an NRC official acknowledged that although the
NRC had no regulatory authority over DOE’s decision to
release recycled materials from its facilities, it would acquire
jurisdiction over the materials were they to enter NRC-
licensed facilities.
 25
The jury also could have concluded that SAIC employees
knew that either the company or its employees had other
relationships that placed SAIC in a conflicting role that might
have biased its judgment. See 41 C.F.R. § 20-
1.5403(b)(1)(iv) (1979). For example, some employees knew
of the significant overlap between, on the one hand, SAIC’s
work for Bechtel Jacobs, which involved dose assessments for
contaminated scrap metal at DOE’s Oak Ridge buildings and
cost-benefit analysis of the recycling of those materials, and,
on the other, SAIC’s work for the NRC. See Science
Applications II, 653 F. Supp. 2d at 101 (summarizing
testimony by several SAIC employees). And contrary to
SAIC’s argument, the jury could have given some weight to
the participation of the company’s Vice President in ARMR.
Although SAIC seeks to minimize the relevance of this
membership, it overlooks the fact that the Vice President
functioned as more than just a member of the organization;
instead, he served as an officer and board member who
“played an active part in ARMR’s advocating for a standard
governing release or recycle of radioactive material.” Id.
Given that role, the jury was entitled to conclude that the Vice
President or others aware of his membership knew or
recklessly failed to know that his simultaneous work for the
NRC on the same subject matter created a potential conflict of
interest that the company was obligated to disclose.

Reviewing the record in its entirety and considering, as
we must, all evidence in the light most favorable to the
government, see Smith v. Wash. Sheraton Corp., 135 F.3d
779, 782 (D.C. Cir. 1998), we conclude that record evidence
is sufficient to have allowed the jury to reasonably believe
that SAIC knowingly submitted false claims for payment and
made false statements of compliance with the organizational
conflict of interest requirements set forth in its NRC contracts.
 26
Breach of Contract
For the same reasons, SAIC’s argument for judgment as a
matter of law as to the government’s breach-of-contract claim
necessarily fails. The record was sufficient to permit the jury
to find that SAIC breached its obligations both to avoid
potential conflicts and to disclose any that arose during the
course of performance.

III.
We next consider SAIC’s alternative contention that we
must vacate and remand for a new trial because the district
court’s “collective knowledge” instruction was both erroneous
and prejudicial. Over SAIC’s objection, the district court
instructed the jury that corporations are “liable for the
collective knowledge of all employees and agents within the
corporation so long as those individuals obtained their
knowledge acting on behalf of the corporation.” Trial Tr. at
17 (July 28, 2008). The court continued:

Therefore, if a corporation has many employees or
agents, you must consider the knowledge possessed
by those employees and agents as if it was added
together and combined into one collective pool of
information. If that collective pool of information
here gives a reasonably complete picture of . . . false
or fraudulent claims or false statements, you may
find that SAIC itself possessed a reasonably
complete picture of the false or fraudulent claims or
false statements and acted knowingly.

Id. The district court then juxtaposed the possibility of
inferring corporate knowledge based on “collective
knowledge” with an alternative, i.e., establishing corporate
scienter based on the state of mind of individual employees.
 27
Specifically, it instructed the jury that it could find that SAIC
“acted knowingly” if it determined that

at least one individual employee of SAIC had actual
knowledge of an organizational conflict of interest
that contradicted SAIC’s statements and claims that
were made and presented to the NRC, or . . . that the
individual employee acted in deliberate ignorance or
in reckless disregard of such information. . . . This
individual need not have been an employee who
actually submitted certifications or claims to the
NRC.

Id.

SAIC and one of its amici argue that the “collective
knowledge” component of this instruction improperly allowed
the government to prove FCA liability without having to
demonstrate that any particular SAIC employee knew that the
company’s claims were false or that SAIC employees acted in
deliberate ignorance or reckless disregard of their truth or
falsity. Whether the district court’s instruction is consistent
with the FCA’s scienter requirement presents a question of
law that we review de novo. See United States v. Orenuga,
430 F.3d 1158, 1166 (D.C. Cir. 2005). Under the harmless
error rule, we will vacate a judgment only if an instructional
error “affected the substantial rights of the parties.” Williams
v. U.S. Elevator Corp., 920 F.2d 1019, 1022 (D.C. Cir. 1990)
(quotations and alterations omitted).

In non-FCA cases, we have expressed a good deal of
skepticism about corporate intent theories that rely on
aggregating the states of mind of multiple individuals. In
Saba v. Compagnie Nationale Air France, 78 F.3d 664 (D.C.
Cir. 1996), in which we held that the plaintiff had failed to
establish that the defendant engaged in the “willful
 28
misconduct” necessary to impose liability under Article 22 of
the Warsaw Convention, we explained that though “negligent
acts of employees can be fairly imputed to the corporation[,]
[i]ndividual acts of negligence on the part of employees . . .
cannot . . . be combined to create a wrongful corporate
intent.” Id. at 670 n.6. More recently, in United States v.
Phillip Morris USA Inc., 566 F.3d 1095 (D.C. Cir. 2009), we
explained that “[l]ike . . . other courts, we are dubious of the
legal soundness of the ‘collective intent’ theory,” under
which, as we explained, a corporation’s specific intent to
defraud can be inferred if the company’s public statements
contradict the accumulated “collective knowledge” of the
corporation’s employees. Id. at 1122. In contrast to these two
non-FCA cases, Congress defined the FCA’s scienter element
to require “no proof of specific intent.” See 31 U.S.C.
§ 3729(b). We nonetheless believe that under the FCA,
“collective knowledge” provides an inappropriate basis for
proof of scienter because it effectively imposes liability,
complete with treble damages and substantial civil penalties,
for a type of loose constructive knowledge that is inconsistent
with the Act’s language, structure, and purpose.

Congress established the FCA’s scienter requirement
when it amended the Act in 1986 “to clarify” that even absent
evidence of specific intent to defraud, “defendants were
subject to liability . . . if they had ‘actual knowledge’ of the
falsity of their claims or acted with ‘deliberate ignorance’ or
‘reckless disregard’ of the truth or falsity of their claims.”
TDC I, 24 F.3d at 297–98 (quoting 31 U.S.C. § 3729(b)).
According to the Senate Committee Report to the 1986
amendments, Congress adopted this definition of
“knowingly” to capture the “ ‘ostrich-like’ conduct which can
occur in large corporations” where “corporate officers . . .
insulate themselves from knowledge of false claims submitted
by lower-level subordinates.” S. Rep. No. 99-345, at 6
 29
(1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5272. That
said, Congress clearly had no intention to turn the FCA, a law
designed to punish and deter fraud, into a vehicle for either
“punish[ing] honest mistakes or incorrect claims submitted
through mere negligence” or imposing “a burdensome
obligation” on government contractors rather than a “limited
duty to inquire.” Id. at 6, 19. The resulting statutory
language demonstrates the care Congress took to balance
competing objectives. Although Congress defined
“knowingly” to include some forms of constructive
knowledge, its definition of that term imposes liability for
mistakenly false claims only when the defendant deliberately
avoided learning the truth or engaged in aggravated gross
negligence. See United States v. Krizek, 111 F.3d 934, 942
(D.C. Cir. 1997) (equating “reckless disregard” with
“aggravated gross negligence”); see also Wang v. FMC Corp.,
975 F.2d 1412, 1420 (9th Cir. 1992) (explaining that although
section 3729(b) of the FCA adopts a less exacting definition
of scienter than common law fraud, “innocent mistakes” and
“negligence” remain defenses under the Act).

Lacking such balance and precision, the “collective
knowledge” theory allows “a plaintiff to prove scienter by
piecing together scraps of ‘innocent’ knowledge held by
various corporate officials, even if those officials never had
contact with each other or knew what others were doing in
connection with a claim seeking government funds.” United
States ex rel. Harrison v. Westinghouse Savannah River Co.,
352 F.3d 908, 918 n.9 (4th Cir. 2003). In other words, even
absent proof that corporate officials acted with deliberate
ignorance or reckless disregard for the truth by submitting a
false claim as the result of, for instance, a communication
failure, the fact-finder could determine that the corporation
knowingly submitted a false claim. In this case, the district
court’s instruction goes even further, drawing no distinction
 30
between the knowledge of corporate officers and that of
potentially thousands of ordinary employees, including the
knowledge of all employees in the “collective pool” of
information imputed to the corporation. The district court’s
instruction thus allowed the jury to find that SAIC knowingly
submitted false claims for payment even if the jury also
concluded (1) that no individual at SAIC was simultaneously
aware (or was recklessly unaware) of the company’s NRC
contract and its relationships with other companies involved
in the recycling of radioactive materials, and (2) that SAIC,
acting on the basis of the knowledge of its individual
employees, took reasonable steps to identify potential
conflicts.

We know of no circuit that has applied the “collective
knowledge” theory to the FCA. Indeed, in a closely
analogous case involving claims that were legally false
because of undisclosed conflicts of interest, the Fourth Circuit
recognized the theory’s troubling implications for FCA
liability. See Harrison, 352 F.3d at 918 n.9.

Defending the district court’s instruction, the government
relies primarily on United States v. Bank of New England, 821
F.2d 844 (1st Cir. 1987), in which the First Circuit held in a
non-FCA case that a collective knowledge instruction was
“entirely appropriate.” Id. at 856. That case is easily
distinguishable. First, as we explained in Saba, although the
First Circuit in Bank of New England allowed the jury to infer
corporate knowledge of facts through the accumulation of
individual knowledge, proof of “the proscribed intent” in that
case “depended on the wrongful intent of specific
employees.” Saba, 78 F.3d at 670 n.6. By contrast, the
“collective knowledge” instruction in this case gave the jury
an alternative basis for finding the requisite scienter. Second,
and more important, the First Circuit’s justification for the
 31
“collective knowledge” theory has no applicability here.
There the court concluded that in the context of corporate
criminal liability, the trial court’s “collective knowledge”
instruction “was not only proper but necessary” to prevent
corporations from evading liability by “compartmentaliz[ing]
knowledge, subdividing the elements of specific duties and
operations into smaller components.” Bank of New England,
821 F.2d at 856. This “compartmentalization” problem,
however, is exactly what Congress had in mind when it
defined “knowing” and “knowingly” in the 1986 FCA
amendments. Under the FCA, if a plaintiff can prove that a
government contractor’s structure prevented it from learning
facts that made its claims for payment false, then the plaintiff
may establish that the company acted in deliberate ignorance
or reckless disregard of the truth of its claims. But if the
plaintiff in such a scenario fails to prove that the corporation
acted with deliberate ignorance or reckless disregard, then no
liability may attach under the FCA’s plain language.

Even though the government relied on the “collective
knowledge” theory throughout the proceedings in the district
court and repeatedly invoked it in closing arguments to the
jury, see Trial Tr. 48–50 (July 28, 2008), it nonetheless claims
that any instructional error was harmless because “the jury . . .
could find that SAIC had the requisite scienter here wholly
apart from [the] collective knowledge rubric.” Appellee’s Br.
42. We agree that the jury, relying entirely on evidence of
actual knowledge possessed by individual company
employees, could have found that SAIC knowingly submitted
false claims and made false statements. Alternatively, relying
on evidence regarding the actions of employees or SAIC’s
systems and structure, the jury could also have concluded that
the company acted recklessly or with deliberate ignorance of
the truth. For example, as noted above, record evidence
suggests that some employees who knew about SAIC’s
 32
organizational conflict of interest obligations to the NRC were
also aware of the company’s business relationships with
British Nuclear, MSC, and Bechtel Jacobs. See supra at 20-
21. If the jury found that these individuals knew or recklessly
failed to know that SAIC, by having these conflicts and
failing to disclose them, violated a requirement under its NRC
contract that was material to the receipt of payment, then that
finding would be enough to establish SAIC’s scienter.

The harmless error standard, however, demands more
than a counterfactual assessment of what verdict the jury
might have reached without relying on the offending
instruction. In order to find that the error had no effect on
SAIC’s substantial rights, we would have to be able to say
“ ‘with fair assurance[] that the judgment was not
substantially swayed by the error.’ ” Williams, 920 F.2d at
1022–23 (quoting Kotteakos v. United States, 328 U.S. 750,
765 (1946) (internal alterations omitted)). This we cannot do,
for the “collective knowledge” instruction may have misled
the jury into believing that the standard for knowledge under
the FCA is lower for corporate defendants. That is, the jury
might have concluded that SAIC acted knowingly, as defined
in the challenged instruction, if the company could have or
should have realized it had potential conflicts based on the
“collective pool of information,” Trial Tr. at 17 (July 28,
2008), derived from all of its individual employees. As a
result, even though the jury might well have accepted SAIC’s
arguments that its compliance system was generally adequate
and that individual employees with knowledge of the
company’s conflicting business relationships honestly and
reasonably believed that these relationships created no
potential conflicts, it still might have concluded based on the
company’s “collective knowledge” that SAIC knew about the
conflicts (and by extension knew that its express
 33
representations and implied certifications of compliance were
false).

To be sure, the district court did instruct the jury that for
the government to satisfy its burden of proof, “more than an
honest mistake or mere negligence [on the part of SAIC] must
be found.” Id. at 16. But by providing an alternate route to
proof of scienter, the “collective knowledge” instruction
undermined the clarity of this separate “no mere negligence
instruction” and allowed the jury to impose liability for what
is essentially negligence or mistake by another name. Given
the essential role that proof of scienter plays under the FCA,
and given our lack of confidence that the jury here based its
verdict on the proper legal standard, we decline to affirm on
the ground that the error was harmless. This is especially so
in view of the fact that we must be sure, as we explained
above, that liability in this implied certification suit attaches
only for fraud and not for ordinary breach of contract. See
supra at 22–23. We shall thus vacate the judgment for the
government with respect to its two FCA causes of action.

Given the foregoing, we have no need to address SAIC’s
challenges to other instructions with respect to its FCA
liability save for one that is also relevant to the breach of
contract verdict. SAIC argues that the district court erred by
failing to instruct the jury as to the meaning of the phrase
“regulated by the Nuclear Regulatory Commission”—key
language that appears in two of the conflict of interest
“situations or relationships” described in NRC regulations, 41
C.F.R. § 20-1.5403(b)(1)(i)–(ii) (1979). But even assuming
that the district court should have defined this phrase for the
jury, we see no prejudice to SAIC. As the district court
explained in its post-trial opinion, “the term ‘regulated by the
NRC’ does not carry a specialized definition under the NRC
regulations, and the jury was adequately informed of the
 34
ordinary definition of ‘regulated by the NRC’ throughout
trial.” Science Applications II, 653 F. Supp. 2d at 110. That
ordinary definition, as SAIC’s former employee
acknowledged in his testimony, simply equated “regulated by
NRC” with “subject to the regulations of NRC.” Trial Tr. at
50 (July 3, 2008 (P.M.)) (testimony of Thomas Rodehau).
We thus have no reason to believe that the jury was left “free
to speculate about the meaning of this legal phrase.”
Appellant’s Br. 50. Accordingly, we shall affirm the
judgment as to the breach of contract claim.

IV.
This brings us finally to SAIC’s challenges to the jury’s
award of damages. Recall that the jury awarded the
government FCA damages of $1,973,839.61, which the
district court then trebled and combined with an additional
$577,500 in civil penalties. Given our decision to vacate the
judgment and remand as to the government’s FCA claims, we
have no need to reach the company’s argument that the award
violates the Eighth Amendment’s Excessive Fines Clause.
See Krizek, 111 F.3d at 940 (declining to reach the
defendant’s Excessive Fines Clause argument after vacating
on other grounds “in keeping with the principle that courts
should avoid unnecessarily deciding constitutional
questions”). But given our remand and in the interest of
judicial economy, we shall consider SAIC’s arguments (1)
that the government failed to prove that it suffered any actual
FCA damages and (2) that the district court’s damages
instruction was erroneous.

The FCA “imposes two types of liability.” United States
ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d
1321, 1326 (D.C. Cir. 2005). First, a defendant who submits
a false claim or makes a false statement to get a false claim
paid is liable for civil penalties regardless of whether the
 35
government shows that the submission of that claim caused
the government damages. See id. Second, the defendant is
liable for “3 times the amount of damages which the
Government sustains because of the act of [the defendant].”
31 U.S.C. § 3729(a). SAIC’s two arguments focus only on
the award of damages.

SAIC contends that notwithstanding any technical
violations of the company’s conflict of interest obligations,
the government is entitled to no damages because it received
the full value of the services covered by the contract. This is
so, SAIC says, because it not only “delivered . . . all the work
product that it promised to deliver under its NRC contracts”
but also because reviewing NRC officials “uniformly praised”
that work product. Appellant’s Br. 54. As the government
points out, however, SAIC’s NRC contract obligated the
company to provide “advice and assistance that was both
technically sound and free from potential bias.” Appellee’s
Br. 46. As a result, a jury could rationally conclude that no
matter how technically proficient SAIC’s performance, the
value of that performance to the NRC was compromised by
the appearance of bias created by the company’s failure to
live up to its contractual conflict of interest obligations. The
jury could therefore award FCA damages for any loss in value
to the NRC attributable to SAIC’s failure to provide the
completely impartial conflict-free services required by the
NRC contracts. See TDC II, 288 F.3d at 428 (“[T]he evidence
allowed the district court to find that the value of the ‘best
efforts’ provided by TDC was vitiated by TDC’s fraudulent
concealment of its rent-seeking behavior.”).

We nonetheless agree with SAIC that the district court’s
damages instruction was flawed. The district court began by
describing the standard for causation, informing the jury that
“[t]he damages that the United States is entitled to recover
 36
under the False Claims Act are the amount of money that the
government paid out by reason of the false claims over and
above what it would have paid out had SAIC not made the
false claims.” Trial Tr. at 21 (July 28, 2008). So far so good.
But the court went on to provide the following additional
guidance:

Your calculations of damages should be limited to
determining what the Nuclear Regulatory
Commission paid to [SAIC] over and above what the
NRC would have paid had it known of SAIC’s
organizational conflicts of interest. Your calculation
of damages should not attempt to account for the
value of services, if any, that SAIC conferred upon
the Nuclear Regulatory Commission.

Id. at 21–22. By requiring the jury to “limit[]” its calculation
of damages to the government’s payments, the instruction
compelled the jury to assess as damages the actual amount of
payments the government made to SAIC. This automatic
equation of the government’s payments with its damages is
mistaken.

In calculating FCA damages, the fact-finder seeks to set
an award that puts the government in the same position as it
would have been if the defendant’s claims had not been false.
See United States ex rel. Miller v. Bill Harbert Int’l Const.,
Inc., 608 F.3d 871, 904 (D.C. Cir. 2010); Harrision, 352 F.3d
at 922–23. In a case where the defendant agreed to provide
goods or services to the government, the proper measure of
damages is the difference between the value of the goods or
services actually provided by the contractor and the value the
goods or services would have had to the government had they
been delivered as promised. Proper application of this
benefit-of-the-bargain measure depends on the particular
 37
circumstances of the case. Where a contractor’s fraud
consists of knowingly submitting nonconforming goods with
ascertainable market value, the Supreme Court has instructed
that “[t]he Government’s actual damages are equal to the
difference between the market value of the [product] it
received and retained and the market value that the [product]
would have had if [it] had been of the specified quality.”
United States v. Bornstein, 423 U.S. 303, 316 n.13 (1976).
But if the value that conforming goods or services would have
had is impossible to determine, then the fact-finder bases
damages on the amount the government actually paid minus
the value of the goods or services the government received or
used. See Joel M. Androphy, Federal False Claims Act &
Qui Tam Litigation § 11.03[2] (2009).

Under this benefit-of-the-bargain framework, the
government will sometimes be able to recover the full value
of payments made to the defendant, but only where the
government proves that it received no value from the product
delivered. See Harrison, 352 F.3d at 923 & n.17 (denying
plaintiff’s claim for disgorgement of the government’s total
contract payments but recognizing that “factual scenarios
could exist in which the contractor’s performance so lacks
any value as to make recovery of all monies paid by the
government an appropriate remedy”); TDC II, 288 F.3d at 428
(“Once TDC deviated from its contracted role as impartial
ombudsman . . . the district court . . . could properly find that
the Program no longer had any value to the government.”
(emphasis added)); United States ex rel. Schwedt v. Planning
Research Corp., 59 F.3d 196, 197–98, 200 (D.C. Cir. 1995)
(holding that payments for computer software system
components induced by false representations in a contractor’s
progress reports could constitute FCA damages where the
individual components were supposedly “worthless on their
own”). In some cases, such as where the defendant
 38
fraudulently sought payments for participating in programs
designed to benefit third-parties rather than the government
itself, the government can easily establish that it received
nothing of value from the defendant and that all payments
made are therefore recoverable as damages. See TDC II, 288
F.3d at 428; see also United States ex rel. Longhi v. Lithium
Power Techs., Inc., 575 F.3d 458, 473 (5th Cir. 2009)
(calculating damages as the amount the government paid to
the defendants where “[t]he contracts entered . . . did not
produce a tangible benefit” to the government and were
instead part of a grant program designed to award money to
deserving small businesses); United States v. Rogan, 517 F.3d
449, 453 (7th Cir. 2008) (concluding that the defendant, who
submitted false claims for Medicare and Medicaid payments,
was required to repay the full amount of the claims as
damages because the defendant “did not furnish any medical
service to the United States,” and instead effectively sought a
government subsidy to which it was not entitled). Here,
however, the damages instruction essentially required the jury
to assume that SAIC’s service had no value even in the face
of possible evidence to the contrary. To establish damages,
the government must show not only that the defendant’s false
claims caused the government to make payments that it would
have otherwise withheld, but also that the performance the
government received was worth less than what it believed it
had purchased.

Because SAIC’s services under its NRC contract had no
ascertainable market price, the district court should instruct
the jury to calculate the government’s damages by
determining the amount of money the government paid due to
SAIC’s false claims over and above what the services the
company actually delivered were worth to the government.
Of course, the government remains free to argue that the
value of SAIC’s advice and assistance was completely
 39
compromised by the existence of undisclosed conflicts,
making the full amount paid to SAIC the proper measure of
damages. SAIC, however, must also be allowed to offer
evidence to the contrary, such as evidence about the technical
quality of its work, the fact that the NRC continued to use
SAIC’s work product after the potential conflicts were
identified and the 1999 contract was terminated, and
testimony by NRC’s project manager that SAIC’s actual work
product “constituted the opposite of a conflict,” Trial Tr. at 9–
10 (July 3, 2008 (P.M.)) (testimony of Dr. Robert Meck), due
to its transparency and fairly conservative results.

We recognize the difficulty the jury will face in
calculating the value of services tainted by potential conflict,
although the district court’s breach of contract instruction
asked the jury to make just such a valuation. See Trial Tr. at
24 (July 28, 2008). The government, however, bears the
burden of proving damages, see 31 U.S.C. § 3731(d), and we
see no basis for adopting an irrebuttable presumption—
essentially what the government seeks—that treats services
involving expert advice and analysis affected by potential
organizational conflicts as categorically worthless.

V.
We affirm the district court’s denial of SAIC’s motion for
judgment as a matter of law, as well as its judgment as to both
liability and damages on the government’s claim for breach of
contract. With respect to the judgment as to liability and
damages under FCA sections 3729(a)(1) and 3729(a)(2), we
vacate and remand for further proceedings consistent with this
opinion.

So ordered.