U.S. EX REL. FELDMAN v. VAN GORP Docket Nos. 10-3297(Lead) 11-975(Con).
697 F.3d 78 (2012)
UNITED STATES of America ex rel. Daniel FELDMAN, Plaintiff-Appellee, v. Wilfred VAN GORP and Cornell University Medical College, Defendants-Appellants.
United States Court of Appeals, Second Circuit.
Decided: September 5, 2012.
Jean-David Barnea, Rebecca C. Martin, Sarah S. Normand, Assistant United States Attorneys, of counsel, for Preet Bharara, United States Attorney for the Southern District of New York, for Amicus Curiae, The United States of America.
Before: SACK, RAGGI, and CHIN, Circuit Judges.
SACK, Circuit Judge:
The defendants appeal from a judgment of the United States District Court for the Southern District of New York (William H. Pauley III, Judge) denying their motion for judgment as a matter of law and their motion for a new trial following a jury verdict partially in favor of the plaintiff on his claims regarding the misuse of a research training grant brought on behalf of the government pursuant to the False Claims Act, 31 U.S.C. § 3729 et seq., and awarding principally $855,714 in treble actual damages. We conclude that: 1)
In 1997, appellants Cornell University Medical College 3 ("Cornell") and Dr. Wilfred van Gorp, a professor of psychiatry at Cornell, applied for funding from the Ruth L. Kirschstein National Research Service Award Institutional Research Training Grant program, also known as the "T32" grant program, of the National Institutes of Health ("NIH"). The T32 program funds pre- and post-doctoral training programs in biomedical, behavioral, and clinical research. T32 grants are meant to "help ensure that a diverse and highly trained workforce is available to assume leadership roles related to the Nation's biomedical and behavioral research agenda." NIH Guide, "NIH National Research Service Award Institutional Research Training Grants," at 1 (May 16, 1997), United States ex rel. Feldman v. Van Gorp, No. 10-3297, Joint Appendix ("J.A.") 2437 (2d Cir. Jan. 26, 2012) ("NIH Guide"). Positions funded through T32 grants may not be used for study leading to clinically-oriented degrees, "except when those studies are a part of a formal combined research degree program, such as the M.D./Ph.D." Id. at 2, J.A. 2438. Instead, funded programs must train their fellows "with the primary objective of developing or extending their research skills and knowledge in preparation for a research career." Id.
Institutions applying for T32 grants undergo a two-tiered review process. It begins with a review of the proposal by a twenty-member "Initial Research Group" ("IRG"), also called a "peer review committee." IRG members are independent experts in scientific fields related to that of the grant application under review; they are not NIH employees. Each member scores applications based on his or her view of its scientific or technical merit guided by specified criteria, including, among other factors: the program director's and faculty's training records, as determined by the success of former trainees; the objective, design, and direction of the program; the caliber of the faculty; the institutional training environment, including the commitment of the institution to training and the resources available to trainees; and the institution's proposed plans for recruiting and selecting high-quality trainees. The scores are then averaged to arrive at an IRG "priority score." Testimony of Dr. Robert Bornstein at 1190-91, July 21, 2010 ("Bornstein Testimony"), J.A.1955. This score is included with the IRG members' written comments in a summary statement, which is transmitted to the NIH.
The "second tier" of review is performed by the advisory council of the appropriate constituent organization of the NIH, in this case the National Institute of Mental Health ("NIMH"). The advisory council ranks the applications by priority score, and establishes a "pay line" at the point in the list of applications where there is no
Once an application has placed above the "pay line," the advisory council makes recommendations based on the scientific merit of the proposal, as judged by the IRG, and the relevance of the proposal to the awarding institute's programs and priorities. Funding is typically approved by the NIH for one year, and recipient institutions are eligible for up to four years of additional funding.
In order to renew a T32 grant, the recipient institution (in this case Cornell) must submit an annual renewal application and a progress report detailing the status of its project. In contrast with initial grant applications, renewal applications are reviewed solely by the NIH on a noncompetitive basis. The NIH considers the progress made under the grant and the grant's budget. By regulation, the annual progress report must contain a "comparison of actual accomplishments with the goals and objectives established for the period," and must specify "[r]easons why established goals were not met," if indeed they were not. 45 C.F.R. § 74.51(d)(1)-(2).
Recipient institutions must also "immediately notify" NIH of "developments that have a significant impact" on the research program, including "problems, delays, or adverse conditions which materially impair the ability to meet the objectives of the award." Id. § 74.51(f). This notification must also include a "statement of the action taken or contemplated, and any assistance needed to resolve the situation." Id.; see also Draft OIG Compliance Program Guidance for Recipients of PHS Research Awards, 70 Fed.Reg. 71312-01, 71320 (Nov. 28, 2005) ("Prompt voluntary reporting will demonstrate the institution's good faith and willingness to work with governmental authorities to correct and remedy the problem. In addition, reporting such conduct may be considered a mitigating factor by the responsible law enforcement or regulatory office....").
Cornell's initial grant application at issue here sought funding for a fellowship program entitled "Neuropsychology of HIV/AIDS Fellowship." Van Gorp Grant Application at 1, J.A. 2254 (April 24, 1997) ("Grant Application"). The application explained that the two-year fellowship would train as many as six post-doctoral fellows at a time in "child and adult clinical and research neuropsychology with a strong emphasis upon research training with HIV/AIDS." Id. at 2, J.A. 2255. The training program would, according to the application, build on the Cornell faculty's extensive research into the neuropsychology of HIV/AIDS, which included projects examining distress levels in HIV-AIDS patients during the course of their illness, the relationship between the neuropsychology of HIV/AIDS and patients' abilities to function at work or in school, and the possibility of using neuropsychological testing to predict whether AIDS patients will suffer from dementia. The application further explained that van Gorp would serve as the program director, and that he had a "long history of successful research, training and mentoring of students in HIV related work." Id. at 40, J.A. 2295.
The 123-page grant application outlined the fellowship's curriculum in detail. Fellows would be required to take "several formal, core didactic courses," and a number
The Cornell grant application identified a list of fourteen faculty members who would serve as "Key Personnel," which the NIH defined as "individuals who contribute to the scientific development or execution of the project in a substantive way." NIH Grant Application Instructions at 26, J.A. 2612 (June 8, 1999). The application described in detail some of these research projects. It also asserted, "Our faculty has a solid track record in quality and productive research in brain-behavior issues, including research in HIV/AIDS-related research [sic]." Grant Application at 48, J.A. 2303. And the application identified additional institutions which would serve as clinical resources, including Cornell University, Memorial Sloan-Kettering Cancer Center, St. Vincent's Hospital, and Gay Men's Health Crisis Center.
In describing the fellowship program's commitment to research training, the grant application explained that "the majority of [the fellows'] clinical work will be with persons with HIV infection." Grant Application at 44, J.A. 2299. Fellows would "devote an average of 75% of their time to research and an average of 25% [of their] time to clinical work with persons with HIV/AIDS and other neuropsychiatric disorders." Id.
The IRG gave Cornell's grant application a high priority score, and the NIH subsequently approved funding for two fellows for the fiscal year beginning September 30, 1997, with the possibility of additional funding for up to four additional years. Cornell submitted renewal applications in each of the following four years, from fiscal year 1999 (July 1, 1998, through June 30, 1999) to fiscal year 2002 (July 1, 2001, through June 30, 2002), all of which the NIH approved. In the accompanying annual progress reports, Cornell and van Gorp indicated that there had been no material alterations to the program as described in the original grant application.
In the renewal application for the second renewal year (the third year overall), for example, Cornell and van Gorp wrote that "[a]ll core and supporting faculty listed in our original application are continuing.... There have been no alterations in the courses or training program from that listed in the original application, except for the addition of two [specified] courses...." 1999 Progress Report at 7, J.A. 2402 (January 19, 1999). The renewal application also explained that the program had been relocated from Cornell's White Plains campus to its New York City (Manhattan) campus in order to provide fellows with "immediate access to subjects and patients who have HIV/AIDS." Id. The renewal applications for the fourth and fifth year stated that "[t]he core structure of our training program has remained the same as in years past and to that described in our initial application." 2000
In September 1998, at about the time the first renewal-year began, Daniel Feldman, the plaintiff,
Testimony presented at trial indicated that some of the faculty members identified as "Key Personnel" in the initial application did not in fact contribute in any substantive way to the fellowship program. Van Gorp acknowledged that the contributions to the program of two of these faculty members, Dr. Tatsuyki Kakuma and Dr. Michael Giordano, were considerably limited, if not entirely eliminated, by the fact that the two doctors were not in physical proximity to the fellows during the grant period. Many fellows, according to their testimony, had little or no interaction with the remaining key personnel, and were unaware that these faculty members were or were supposed to be available as resources. In addition, according to this testimony, fellows were largely unaware of research opportunities at medical centers other than Cornell.
There was also testimony in the district court to the effect that Cornell and van Gorp failed to notify NIH that the curriculum outlined in the initial grant application was never implemented. Several core courses identified in the application were not regularly conducted for fellows, and fellows were not informed that these courses were a required component of the program. Moreover, according to this testimony, fellows were never evaluated or supervised by the training committee referred to in the Grant Application.
Feldman also presented evidence that the research and clinical training described in the initial grant application differed significantly from the actual training received. NIH rules provide that fellows in a T32 program "must devote their time to the proposed research training and must confine clinical duties to those that are an integral part of the research training experience." NIH Guide at 3, J.A. 2439; T32 Training Grant Announcement at 9, J.A. 2568 (June 16, 2006). And, in accordance with these requirements, the grant application stated that "the majority of [the fellows'] clinical work will be with persons with HIV infection." Grant Application at 44, J.A. 2299. Further, in explaining the training program's relocation from White Plains to Manhattan, the third-year renewal application explained that "[f]ellows [would be] housed within a large, medical/surgical setting with immediate access to subjects and patients who have HIV/AIDS." 1999 Progress Report at 7, J.A. 2402.
But, as the plaintiff summarizes the trial testimony, out of the 165 clinical cases that the fellows saw during their fellowship, only three involved HIV-positive patients.
In July 2001, after he had left the program, Feldman submitted a letter to the NIH complaining about the program's focus on clinical work rather than research, and the fellows' limited access to HIV-positive patients. In March 2002, he submitted another letter to the NIH, again complaining that the fellowship program deviated from its description in the initial grant application. In response, the NIH asked Cornell to conduct an investigation of the complaint, which Cornell completed in June 2003. Cornell then sent Feldman a letter informing him that the investigation uncovered no wrongdoing.
On October 14, 2003, Feldman filed a qui tam complaint pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq.,
On January 9, 2009, after discovery had been completed, Cornell and van Gorp moved for summary judgment. On December 7, 2009, the district court denied the motion, concluding that there were genuine issues of material fact as to whether the defendants made false statements
On December 18, 2009, the defendants moved for reconsideration of the summary judgment decision, arguing that the district court had erred in failing to address the issue of whether Feldman should be limited to statutory penalties because he had not presented sufficient evidence of actual damages to the United States. On May 3, 2010, the district court denied the motion, explaining that although the damages to the United States could not be calculated in the same way they would be in a standard breach-of-contract action because no tangible benefit had been received, the plaintiff would not be limited to statutory damages. United States ex rel. Feldman v. Van Gorp ("Feldman II"), No. 03 Civ. 8135, 2010 WL 1948592, at *1-*2, 2010 U.S. Dist. LEXIS 47039, at *4-*6 (S.D.N.Y. May 3, 2010). The court said that the "`benefit of the bargain' to the government is providing funds to recipients who best fit its specified criteria and that this benefit is lost when funds are diverted to less eligible recipients." Id. at *2, 2010 U.S. Dist. LEXIS 47039, at *4-*5. Therefore, "if the fact-finder concludes that the government would not have awarded the grant absent the false claims, it may properly conclude that the measure of damages is the total amount the government paid." Id., 2010 WL 1948592, at *2, 2010 U.S. Dist. LEXIS 47039, at *6.
Before trial, Feldman submitted a motion in limine to exclude evidence including that of NIH's inaction towards Cornell and van Gorp in response to Feldman's complaints about the fellowship program. On July 8, 2010, the district court granted Feldman's motion to exclude that evidence. The court concluded that the evidence of NIH's inaction was irrelevant and therefore inadmissible under Rule 402 because "no discovery was conducted concerning the standards [NIH used] to determine the existence of misconduct and whether those standards are at all similar to the elements of an FCA claim." United States ex rel. Feldman v. van Gorp ("Feldman III"), No. 03 Civ. 8135, 2010 WL 2911606, at *3, 2010 U.S. Dist. LEXIS 73633, at *7 (S.D.N.Y. July 8, 2010). Moreover, the court concluded, even if "marginally relevant," the evidence would have been excluded pursuant to Rule 403 because of the possibility that it would confuse or mislead the jury.
The case was tried to a jury for eight days in July 2010, resulting in a partial verdict for Feldman. The jury found the defendants not liable for false statements in the Grant Application and the first renewal application, but found liability based on the renewal applications for the third, fourth and fifth years of the grant, i.e., the second, third and fourth renewal years. On August 3, 2010, the district court awarded actual damages in treble the amount NIH paid for the last three renewal
On August 25, 2010, the defendants filed a motion for judgment as a matter of law under Rule 50(b), or in the alternative, for a new trial pursuant to Rule 59. The defendants argued that there was insufficient evidence from which the jury could properly have concluded that the false statements at issue were material to the NIH's decisions to renew the T32 grant, and that the court should grant judgment as a matter of law, or that such a conclusion was against the weight of the evidence and warranted a new trial. The defendants also argued that the district court erred in determining as a matter of law that damages were equal to the entire grant amounts for the years in which liability was found rather than submitting that question to the jury.
The district court denied this motion on December 9, 2010. United States ex rel. Feldman v. van Gorp ("Feldman IV"), No. 03 Civ. 8135, 2010 WL 5094402, at *5, 2010 U.S. Dist. LEXIS 130358, at *14-*15 (S.D.N.Y. Dec. 9, 2010). The court concluded that Feldman had presented sufficient evidence for the jury to conclude that the false statements were material to the NIH's funding decisions, noting that NIH's guidelines and instructions on the renewal applications unambiguously stated that it should be notified of any changes made to the grant program. Id. at *2-*5, 2010 U.S. Dist. LEXIS 130358, at *4-*14. The district court also relied on its opinion in Feldman III to deny the motion for a jury trial on damages. Id. at *5, 2010 U.S. Dist. LEXIS 130358, at *13-*15.
The defendants appeal.
The defendants contend that: (1) the district court erred in its methodology for determining damages and in determining the amount of those damages, as a matter of law; (2) the jury did not have sufficient evidence from which to conclude that the false statements at issue were material to the funding decision; and (3) the district court erred in excluding evidence of NIH's "inaction" in response to Feldman's complaint.
The False Claims Act prohibits a person from "knowingly present[ing], or caus[ing] to be presented, [to an officer or employee of the United States Government,] a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). Liability under the Act also requires a showing of materiality.
The FCA provides for damages equal to "3 times the amount of damages which the Government sustains because of the act of that person," in addition to a "civil penalty." 31 U.S.C. § 3729(a)(1). The Act does not specify how damages are to be calculated, but the Supreme Court has recognized that the purpose of damages, even as multiplied, under the Act is to make the government "completely whole" for money taken from it by fraud. United States ex. rel. Marcus v. Hess,
The question of how damages should be measured in an FCA case where "contracts entered into between the government and the Defendants did not produce a tangible benefit to the [government]," United States ex. rel. Longhi v. United States,
A. Proper Measure of Damages
In most FCA cases, damages are measured as they would be in a run-of-the-mine breach-of-contract case — using a "benefit-of-the-bargain" calculation in which a determination is made of the difference between the value that the government received and the amount that it paid. See United States v. Foster Wheeler Corp.,
There are generally two ways of determining damages in such cases. First, if the non-conforming goods or services have an ascertainable market value, then damages are measured according to the "`difference between the market value of the product [the government] received and retained
The defendants contend that a "benefit-of-the-bargain" calculation was appropriate in this case, and that the district court erred by awarding the government the full amount of the grant for the years for which the violations were found rather than the difference between the value of the training promised and that actually delivered. The plaintiff argues, to the contrary, that a different measure of damages is appropriate in cases such as this, where "the defendant fraudulently sought payments for participating in programs designed to benefit third-parties rather than the government itself" and the government received nothing of tangible value from the defendant. Id.; see also Longhi, 575 F.3d at 473 ("[W]here there is no tangible benefit to the government and the intangible benefit is impossible to calculate, it is appropriate to value damages in the amount the government actually paid to the Defendants."). This approach rests on the notion that the government receives nothing of measurable value when the third-party to whom the benefits of a governmental grant flow uses the grant for activities other than those for which funding was approved. In other words, when a third-party successfully uses a false claim regarding how a grant will be used in order to obtain the grant, the government has entirely lost its opportunity to award the grant money to a recipient who would have used the money as the government intended.
The plaintiff and the United States, as amicus curiae, argue that this is such a case: The government received no tangible benefit from the T32 grant — students and others may have, but not the government. The grant represented an attempt to, but did not thereby, promote "child and adult clinical and research neuropsychology with a strong emphasis upon research training with HIV/AIDS." Grant Application at 2, J.A. 2255. The plaintiff argues that the government is therefore entitled to damages equal to the full amount of grants awarded to the defendants based on their false statements.
We conclude that the measure of damages advocated by the plaintiff and the United States is correct.
Although we have not addressed this question, several of our sister circuits have done so in decisions that support the conclusion we now reach. See Science Applications, 626 F.3d at 1279 (D.C.Cir.); Longhi, 575 F.3d at 473 (5th Cir.); United States v. Rogan,
In support of this theory, the defendants cite United States v. Hibbs,
The government argued that its damages were the total amount of the mortgage debt it had assumed, insisting that "had [the defendant] not furnished the false certification, it would not have insured the mortgage[s] and therefore would not have been called upon to make any payment." Id. at 351.
The Third Circuit rejected this argument.
Similarly, in Coleman v. Hernandez,
This is not, however, the methodology generally employed by courts evaluating FCA claims based on Medicaid or Medicare fraud. In United States ex. rel. Tyson v. Amerigroup Illinois, Inc.,
In short, in each of the cases cited by the defendants, the government paid for a contracted service with a tangible benefit — whether it be medical care, security on mortgages, or subsidized housing — but paid too much. The government in these cases got what it bargained for, but it did not get all that it bargained for. Thus, courts treated the difference between what the government bargained for and what it actually received as the measure of damages. Here, by contrast, the government bargained for something qualitatively, but not quantifiably, different from what it received.
This approach comports with the one we discussed in making a sentencing calculation of loss in United States v. Canova,
Canova's reasoning supports the challenged loss calculation. As a result of the fraudulent renewals, the government was paying for a program that was not at all as specified. By contrast to the Medicare cases cited by defendants, the government
B. Fraudulent Inducement
The defendants acknowledge that courts have applied the plaintiff's theory of damages in cases including Mackby, Rogan, and Longhi, but argue that those cases are distinguishable from this one because the defendants in each of those cases obtained funds through fraudulent inducement — and that any such theory would fail here because no liability was found with respect to the Grant Application. "In a fraudulent inducement case, [it is] the false statements [that] allow the defendant to obtain the funding in the first place." Defs.' Reply Br. at 9.
According to the defendants, because a defendant in a fraudulent inducement case would not be eligible for any funding received after the initial false claim, a court in such a case could properly conclude that the defendant is liable for the entire amount that the government paid. But "[h]ere, the jury expressly found that the initial Application contained no false statements, and there was no false certification ever at issue." Id. The defendants argue that Mackby, Rogan, and Longhi therefore do not support the damages theory employed by the district court.
We see no principled distinction, however, between fraudulently inducing payment initially, thereby requiring all payments produced from that initial fraud to be returned to the government (trebled and with certain fees and costs added as provided by statute), and requiring payments based on false statements to be returned to the government when those false statements were made after an initial contractual relationship based on truthful statements had been established. Although it may be true that under a fraudulent inducement theory, "subsequent claims for payment made under the contract [that] were not literally false, [because] they derived from the original fraudulent misrepresentation, [are also] ... actionable false claims," Longhi, 575 F.3d at 468 (second brackets in original; internal quotation marks omitted), this proposition simply speaks to the time period for which FCA liability may be found. It does not suggest that without fraudulent inducement, no subsequent false statements can result in FCA liability.
If the government made payment based on a false statement, then that is enough for liability in an FCA case, regardless of whether that false statement comes at the beginning of a contractual relationship or later. The only difference would be that liability begins when the false statement is made and relied upon, rather than at the beginning of the contractual relationship, as it would be in a fraudulent inducement case. Here, the jury found that materially false statements had been made by the defendants in years 3, 4, and 5 of the grant, and the court properly awarded damages based on that finding.
C. Damages as a Matter of Law
The defendants argue that the calculation of damages should have been decided as a question of fact by a jury, not as a matter of law by the district court. Indeed, in FCA cases, the jury ordinarily does determine the amount of damages to be imposed upon the defendant. See Chandler, 538 U.S. at 132, 123 S.Ct. 1239.
As the government correctly observes in its amicus brief, awarding damages in this manner is not novel. And often, the amount of damages in such cases has been determined as a matter of law in the course of the court's grant of summary judgment to the plaintiff. See, e.g., Longhi, 575 F.3d at 461 (affirming summary judgment and damages award); United States v. TDC Mgmt. Corp.,
United States ex rel. Antidiscrimination Center of Metro New York, Inc. v. Westchester County, No. 06 Civ. 2860, 2009 WL 1108517, 2009 U.S. Dist. LEXIS 35041 (S.D.N.Y. Apr. 24, 2009), is illustrative. There the federal government paid approximately $52 million as part of a federal grant to Westchester County for the purposes of housing and community development. Id. at *2-*4, 2009 U.S. Dist. LEXIS 35041, at *5-*11. The grant required the county to certify that it would "conduct an analysis of impediments ... to fair housing choice, including those impediments imposed by racial discrimination and segregation, to take appropriate actions to overcome the effects of any identified impediments, and to maintain records reflecting the analysis and actions." Id. at *1, 2009 U.S. Dist. LEXIS 35041, at *2-*3. The court granted summary judgment for the plaintiff after finding that Westchester County had not conducted the analysis as promised. The court agreed with the plaintiff's contention that damages should be the full amount the government paid, and rejected the county's argument that the damages question should be submitted to the jury. There, as here, "the United States did not get what it paid for," and there was no role for the jury because "Westchester's damages cannot be reduced by reference to the alleged `benefit' it provided to HUD." Id. at *3, 2009 U.S. Dist. LEXIS 35041, at *9.
We conclude that in the case before us, inasmuch as the damages equal the full amount that the government paid and that amount is not in dispute, they were properly determined by the district court as a matter of law.
D. Sufficiency of the Evidence
Finally, the defendants contend that the plaintiff did not submit sufficient evidence to the jury to establish by a preponderance of the evidence that the government suffered damages equal to the full amount of the T32 grant. The defendants argue that "to prove that the amount of damages was the entire amount of the grant, a relator would be required to prove that the government received no value — at all — through the grant work it funded." Defs.' Br. at 37.
The defendants support this contention by citing benefit-of-the-bargain cases. The defendants' argument is therefore unavailing. Unlike a benefit-of-the-bargain case, no specific amount of damages must be proved because, as we have explained at length, damages in this case equal the entire amount of the grant that was lost as a result of the fraud.
The defendants assert that the false statements to the government that are at issue were not material to the transactions in question. The district court therefore erred, they say, in denying the defendants'
We conclude that the jury had sufficient evidence from which to conclude, as it did, that the defendants' false statements materially influenced NIH's decisions to renew the T32 grant.
A motion for a new trial will ordinarily be granted "so long as the district court determines that, in its independent judgment, the jury has reached a seriously erroneous result or [its] verdict is a miscarriage of justice." Nimely v. City of New York,
A motion for judgment as a matter of law may be granted only "[i]f a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue." Fed.R.Civ.P. 50(a)(1). "A court evaluating such a motion cannot assess the weight of conflicting evidence, pass on the credibility of witnesses, or substitute its judgment for that of the jury." Black v. Finantra Capital, Inc.,
The district court concluded that the plaintiff had "presented significant documentary evidence to support a finding of materiality." Feldman IV, 2010 WL 5094402, at *2, 2010 U.S. Dist. LEXIS 130358, at *5.
First, the parties stipulated that in order for a grantee to receive additional funding after the initial grant year, the "grantee must submit a noncompetitive renewal application ... includ[ing] a progress report which NIH expects will provide information about the trainees['] activities during the previous funding period." Id. Second, the renewal instructions for the T32 grant contain a statement explaining that "`Progress Reports provide information to awarding component staff that is essential in the assessment of changes in scope or research objectives... from those actually funded. They are also an important information source for the awarding component staff in preparing annual reports, in planning programs, and in communicating scientific accomplishments to the public and to Congress.'" Id., 2010 WL 5094402, at *2, 2010 U.S. Dist. LEXIS 130358, at *6 (quoting NIH Grant Continuation Instructions at 7, J.A. 2462). Third, the renewal instructions direct grantees to "highlight progress in implementation and developments or changes that have occurred. Note any difficulties encountered by the program. Describe changes in the program for the next budget period, including changes in training faculty and significant changes in available space and/or facilities." Id. (internal quotation marks and brackets omitted). The instructions also ask for "`information describing which, if any, faculty and/or mentors have left the program.'" Id. at *3, 2010 U.S. Dist. LEXIS 130358, at *6-*7 (quoting T32 Program Announcement
The district court rejected the defendants' argument that the jury was required to accept Dr. Robert Bornstein's unrebutted testimony on the issue of materiality. Id., 2010 WL 5094402, at *3, 2010 U.S. Dist. LEXIS 130358, at *7. Bornstein was a member of the IRG that reviewed the defendants' initial grant application. At trial, he testified as to the factors he considered material to his analysis of a grant application. He asserted that although he reviewed the application, he did not expect that every faculty member identified in the initial grant application would be involved with the fellowship program. He also testified that he did not expect the fellowship program to follow the exact curriculum outlined in the initial application. The defendants argued that this testimony established that not all false statements in the renewal applications were material.
The district court rejected this argument because Bornstein never reviewed the renewal applications, nor did he have an independent recollection of reviewing the initial grant application. Id., 2010 WL 5094402, at *3, 2010 U.S. Dist. LEXIS 130358, at *7-*8. The court also concluded that "[t]he absence of testimony by a government official supporting a finding of materiality does not mean that the jury was required to accept Bornstein's testimony." Id., 2010 WL 5094402, at *3, 2010 U.S. Dist. LEXIS 130358, at *7. "[T]he jury was well within its bounds to credit NIH's unambiguous guidelines and instructions over Bornstein's conclusory testimony that little in the Grant Application really would have mattered to him had he remembered reviewing it at all." Id., 2010 WL 5094402, at *3, 2010 U.S. Dist. LEXIS 130358, at *8.
On appeal, the defendants do not dispute that the renewal applications contained NIH's instructions and guidelines. They contend instead that "none of these statements, taken individually or together, establish what information was material to NIH's funding decisions on renewals," Defs.' Br. at 47, "the Renewal Instructions and the Program Announcement are silent as to what information matters to NIH for purposes of its funding decision." Id. at 52. The defendants argue in substance that there is no evidence from which the jury could have decided that the statements it found to be false materially influenced NIH's decision to renew the T32 grant.
This argument, however, misapprehends the focus of the materiality analysis. In Rogan, the defendant hospital admitted
The court rejected this view of materiality, explaining that a "statement or omission is `capable of influencing' a decision even if those who make the decision are negligent and fail to appreciate the statement's significance." Id. As the court stated, "[t]he question is not remotely whether [the applicant] was sure to be caught ... but whether the omission could have influenced the agency's decision." Id.
In short, even if a program officer does not subjectively consider a statement to be material, it can be found to be material from an objective standpoint because it is "capable of influencing" the program officer. Id. As the plaintiff in this case argues, materiality is "determined not by what a program officer at NIH declares material, but rather [is] based on the agency's own rules and regulations." Pl.'s Br. at 48.
The Rogan court discussed the purpose of laws prohibiting fraud:
517 F.3d at 452 (citation omitted).
We agree with the plaintiff that the test for materiality is an objective one. It does not require evidence that a program officer relied upon the specific falsehoods proven to have been false in each case in order for them to be material. The fact-finder must determine only whether the proven falsehoods have a "natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." 31 U.S.C. § 3729(b)(4).
To decide otherwise — that materiality must be established in each case based on the testimony of a decisionmaker — would subvert the remedial purpose of the FCA. The resolution of each case would depend on whether such a decisionmaker could be identified and located, and whether that particular person would have treated the claims as material, regardless of whether they were one of several individuals charged with evaluating the claims at issue.
The defendants' contention would also render the language of the statute superfluous. If no one other than an actual decisionmaker could determine whether a statement had a "natural tendency to influence" payment, the statute could have provided that a statement is "material" if it actually influenced a decision maker who was aware of the statement.
Our conclusion finds support in other areas of the law. In TSC Indus., Inc. v. Northway, Inc.,
The same reasoning applies here. Like the securities laws at issue in TSC Industries, this objective approach ensures that the FCA serves as a robust prophylactic against fraud by putting the question of materiality to the jury, rather than attempting to trace it back to the state of mind of the decisionmaker.
In Bustamante v. First Federal Savings & Loan Association of San Antonio,
Id. at 362. Here again, the court applied an objective rather than a subjective materiality standard. "[T]o apply a subjective standard to the test for materiality would misperceive the remedial purpose of the Act." Id. at 364. The court concluded that if materiality could be established by a subjective determination of whether or not particular information would affect a credit shopper's decision to utilize the credit, unsophisticated or uneducated consumers would not be sufficiently protected. Id.
Having concluded that the test of materiality in the case before us is objective — asking what would have influenced the judgment of a reasonable reviewing official — rather than subjective — asking whether it influenced the judgment of a reviewer of a proposal in the case at hand — we agree with the district court that a reasonable jury could have found the defendants' statements to be material to the renewal decisions in the third, fourth, and fifth years of the grant. Based on the stipulations regarding criteria relevant to funding and the testimony at trial, the jury had an ample basis for understanding the grant process based upon which it could determine whether statements that were made or omitted concerning changes to curriculum, personnel and clinical opportunities in the renewal applications had a "natural tendency" to influence NIH's funding decisions. The instructions regarding the grant application and renewal process provided the jury with a clear understanding of what information the NIH considers in evaluating progress reports, such as changes or developments to the program.
We therefore also conclude that the district court did not abuse its discretion in denying the motion for a new trial — the jury's verdict was not "seriously erroneous" or "a miscarriage of justice." Nimely, 414 F.3d at 392 (internal quotation marks omitted).
III. Exclusion of Evidence Demonstrating NIH's Inaction
The defendants argue that the district court abused its discretion by excluding evidence of NIH's alleged failure to take remedial action in response to the plaintiff's complaints, and that a new trial is therefore warranted. We review a district court's decision to exclude evidence for abuse of discretion. Schering Corp. v. Pfizer Inc.,
The defendants contend that they should have been permitted to elicit evidence of NIH's relative inaction in response to complaints because it is relevant as to whether or not their statements in the renewal applications were false and material. Feldman told NIH about the defendants' fraudulent claims and, according to the defendants, the agency saw no validity to the complaints as evidenced by its failure to take action beyond asking Cornell itself to investigate the complaints. The defendants argue that they should have been able to present this evidence to the jury in an effort to persuade it that the statements had not misled the agency. If this evidence was presented, they say, the plaintiff "could then have put on any rebuttal evidence about why the jury should find the statements were false and material despite NIH's lack of reaction when presented with those allegations." Defs.' Br. at 61.
Federal Rule of Evidence 402, provides, inter alia, that "[i]rrelevant evidence is not admissible." The district court reasoned that the evidence in question was irrelevant because the NIH's failure to act in response to Feldman's complaints did not speak to the seriousness of those complaints or the likelihood that false claims had been made. The jury did not have before it the standard that NIH used to determine whether or not action was warranted in response to a funding complaint. "[N]o discovery was conducted concerning the standards these agencies employ to determine the existence of misconduct and whether those standards are at all similar to the elements of an FCA claim." Feldman III, 2010 WL 2911606,
The defendants further argue that to the extent that the district court excluded evidence of NIH's inaction pursuant to Rule 403, it did so in error. While ultimately we would be inclined to agree with the district court, we need go no further in our analysis because the evidence was properly excluded under Rule 402 in any event. This conclusion was not an abuse of discretion.
For the foregoing reasons, we affirm the judgment of the district court.
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