United States v. Honeywell International, Inc.

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 30, 2022 Decided August 30, 2022
No. 21-5179
UNITED STATES OF AMERICA,
APPELLEE
v.
HONEYWELL INTERNATIONAL INC.,
APPELLANT
Appeal from the United States District Court
for the District of Columbia
(No. 1:08-cv-00961)
Craig S. Primis argued the cause for appellant. With him
on the briefs was James Y. Xi.
Tara S. Morrissey, Andrew R. Varcoe, Beth S. Brinkmann,
and Daniel G. Randolph were on the brief for amicus curiae
Chamber of Commerce of the United States of America in
support of appellant.
Sean R. Janda, Attorney, U.S. Department of Justice,
argued the cause for appellee. With him on the brief were Brian
M. Boynton, Acting Assistant Attorney General, and Michael
S. Raab and Charles W. Scarborough, Attorneys.
2
Before: TATEL ∗ and RAO, Circuit Judges, and GINSBURG,
Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge RAO.
RAO, Circuit Judge: In this False Claims Act case, the
United States sued Honeywell International Inc. for providing
the material in allegedly defective bulletproof vests sold to or
paid for by the government. Among other relief, the
government seeks treble damages for the cost of the vests. It
has already settled with the other companies involved, and
Honeywell seeks a pro tanto, dollar for dollar, credit against its
common damages liability equal to those settlements. For its
part, the government argues Honeywell should still have to pay
its proportionate share of damages regardless of the amount of
the settlements with other companies. The district court
adopted the proportionate share rule but certified the question
for interlocutory review under 28 U.S.C. § 1292(b).
The False Claims Act does not provide a settlement offset
rule, nor does it include a common law term incorporating such
a rule. This case presents the rare circumstance in which this
court must establish a federal common law rule to govern
damages arising from federal law. We reverse the district court
and hold the pro tanto rule is the appropriate approach to
calculating settlement credits under the False Claims Act.
I.
A.
The False Claims Act (“FCA”) “impose[s] liability for
fraud against the government.” United States ex rel. Cimino v.
∗
Judge Tatel assumed senior status after this case was argued and
before the date of this opinion.
3
Int’l Bus. Machs. Corp., 3 F.4th 412, 415 (D.C. Cir. 2021). See
generally Act of Mar. 2, 1863, ch. 67, 12 Stat. 696 (codified as
amended at 31 U.S.C. § 3729 et seq.). As relevant here, the
FCA prohibits fraudulently inducing the government into a
contract and falsely certifying the specifications of an item sold
to the government. See 31 U.S.C. § 3729(a)(1)(A)–(B). Each
false claim subjects a person to treble damages in addition to a
civil penalty. Id. § 3729(a)(1) (A violator “is liable to the
United States Government for a civil penalty of not less than
$5,000 and not more than $10,000, as adjusted [for
inflation,] … plus 3 times the amount of damages which the
Government sustains because of the act of that person.”).
In FCA cases, when multiple parties cause the same
indivisible harm to the government, courts have applied joint
and several liability without a right to contribution. 1 See, e.g.,
United States v. TDC Mgmt. Corp., Inc., 288 F.3d 421, 429
(D.C. Cir. 2002) (applying joint and several liability to an FCA
claim). In general, when a joint tortfeasor settles, the settlement
counts against a non-settling party’s potential liability. See
RESTATEMENT (SECOND) OF TORTS § 886A cmt. m (1979)
(assuming settlement offsets and recognizing the lack of
consensus about how to assess the proper offset). The parties
agree as to these basic principles of law. The question of first
impression we decide is the correct rule for calculating the
settlement credit for FCA damages.
B.
Because this case comes to us on an interlocutory appeal,
we recount the undisputed facts as found by the district court
1
Under joint and several liability, “[t]he plaintiff can obtain a
judgment against all defendants and then enforce it against any one
of them, or partly against one and partly against another.” DOBBS’
LAW OF TORTS § 488 (2d ed.).
4
on summary judgment. The litigation arises from allegedly
fraudulent claims for bulletproof vests made from “Z Shield.”
Z Shield is an “anti-ballistic material” made of “Zylon” fiber
that Honeywell purchased from third parties. Honeywell sold
more than $15 million worth of Z Shield to Armor Holdings,
Inc., which in turn incorporated the material into bulletproof
vests. Armor Holdings sold those vests to the federal
government and to state and local law enforcement agencies
who purchased the vests with federal funding. United States v.
Honeywell Int’l Inc., 502 F. Supp. 3d 427, 435 (D.D.C. 2020).
“Honeywell marketed Z Shield … as the best ballistic product
in the market for ballistic resistance.” Id. (cleaned up). But
when two police departments tested the vests in high
temperatures, they allegedly degraded. Id. at 446, 462–63.
Upon further investigation, the federal government concluded
that “Zylon [was a] material that appears to create risk of death
or serious injury as a result of degraded ballistic performance
when used in body armor” and stopped buying the vests. Id. at
447 (cleaned up).
The government brought this suit under the FCA against
Honeywell. It alleged that Honeywell knew about the problems
with Zylon but hid them from the government, fraudulently
misrepresenting that Z Shield was “state-of-the-art ballistics
technology.” The government claimed damages for the full
amount paid for the vests, approximately $11.5 million, trebled
to roughly $35 million. Id. at 479; see 31 U.S.C. § 3729(a)(1).
While this suit was ongoing, the government secured
settlements totaling $36 million with Armor Holdings and
foreign Zylon providers for their role in manufacturing and
supplying the vests. See Honeywell, 502 F. Supp. 3d at 477–80.
In light of these settlements, Honeywell moved for
summary judgment on the question of damages (as well as
other issues not before us on this interlocutory appeal).
5
Honeywell claimed it was entitled to a credit in the amount of
the settlements already secured by the government as
compensation for the allegedly defective Z Shield vests.
Honeywell maintained the court should apply a pro tanto 2
approach, reducing any common damages Honeywell owed by
the amount of the settlements. Applying that approach here
would mean that, even if the government’s allegations were
true, Honeywell would pay no damages because the
settlements exceeded its alleged damages liability. Opposing
this pro tanto approach to calculating settlement offsets, the
government argued the district court should apply a
proportionate share approach. Under this approach,
Honeywell’s settlement credit would be limited by the other
parties’ proportion of fault, meaning Honeywell would still be
responsible for its proportionate share of the $35 million,
regardless of the amount of the settlements.
The district court adopted the proportionate share
approach advanced by the government. The court relied on
McDermott, Inc. v. AmClyde, in which the Supreme Court
addressed the proper settlement credit rule for admiralty suits
and chose the proportionate share rule over the pro tanto rule.
511 U.S. 202, 207, 217 (1994); see also id. at 208–209
(distinguishing the proportionate share and pro tanto
approaches). The district court balanced four considerations in
choosing the proportionate share rule: “consistency with prior
decisions, promotion of settlement, judicial economy, and
equity.” Honeywell, 502 F. Supp. 3d at 480 (citing McDermott,
511 U.S. at 208–17). For the purposes of the FCA, the district
court found the consistency with precedent factor inconclusive;
the proportionate share approach “does not undermine the
incentive to settle” and “is no less efficient or workable than”
2
Pro tanto means “[t]o that extent; for so much.” Pro Tanto,
BLACK’S LAW DICTIONARY (11th ed. 2019).
6
the pro tanto approach; and “the proportionate share approach
is more equitable.” Id. at 482. The court emphasized that
applying the pro tanto rule “would be wholly inequitable”
because it would “permit Honeywell to escape damages
liability altogether.” Id. at 485.
The court certified this question for interlocutory review
under 28 U.S.C. § 1292(b) because it was an important
“quintessential abstract legal issue.” United States v.
Honeywell Int’l Inc., 2021 WL 2493382, at *5 (D.D.C. June
18, 2021) (cleaned up). We agreed to hear the interlocutory
appeal.
II.
By permitting this interlocutory appeal on the question of
the appropriate measure of damages offsets under the FCA, we
decided to answer a “controlling question of law as to which
there is substantial ground for difference of opinion.” 28 U.S.C.
§ 1292(b). Because we have undertaken to review the district
court’s legal conclusions, the appropriate standard of review is
de novo. Kahl v. Bureau of Nat’l Affairs, Inc., 856 F.3d 106,
113 (D.C. Cir. 2017).
Although the de novo standard of review is well
established in these circumstances, the government maintains
we should review the district court’s choice of a settlement
offset approach for abuse of discretion. It contends the offset
rule is not a question of law because the FCA does not resolve
the issue and courts have discretion to pick a settlement offset
approach on a case-by-case basis.
We reject the government’s characterization of the issue
on appeal. Although we agree the FCA does not provide a
settlement offset rule, as explained further below, the choice of
a damages rule is not a matter of judicial discretion, but rather
7
requires a common law determination of the proper rule to
apply in FCA suits. In other contexts when it was necessary for
a court to establish a proper settlement offset rule, the Supreme
Court and other courts of appeals have treated the
determination as a question of law. 3 See, e.g., McDermott, 511
U.S. at 207 (granting certiorari to “fashion the rule” for
settlement offsets in admiralty); Franklin v. Kaypro Corp., 884
F.2d 1222, 1228 (9th Cir. 1989) (deciding a single rule to
govern settlement offsets for a securities statute); Singer v.
Olympia Brewing Co., 878 F.2d 596, 599 (2d Cir. 1989)
(same). When federal courts set damages rules, they do so as a
matter of common law, not amorphous judicial discretion.
Fashioning a common law rule is not the same as exercising
discretion: common law courts decide cases one at a time, but
their reasoning provides a binding rule of decision for like
cases in the future. This comports with the basic function of the
judicial branch to say what the law is, and it allows future
parties to structure their decisions around predictable legal
rules. Cf. Antonin Scalia, The Rule of Law as a Law of Rules,
56 U. CHI. L. REV. 1175, 1185 (1989) (“[T]he establishment of
broadly applicable general principles is an essential component
of the judicial process.”).
The government also suggests we should apply an abuse
of discretion standard because the district court’s reliance on
“equity” shows it was exercising discretion. While the district
court referred to equitable considerations, its orders follow
McDermott to set a legal rule for calculating settlement offsets.
And the court certified the settlement offset question under
3
It should go without saying that a federal court has no common law
authority to establish a settlement rule when one is provided in a
statute, or if a statute otherwise directs how to adjudicate settlement
offsets. See, e.g., 42 U.S.C. § 9613(f)(1) (requiring courts to “us[e]
such equitable factors as the court determines are appropriate” to
allocate liability for contribution purposes in CERCLA settlements).
8
Section 1292(b) because it was a “quintessential abstract legal
issue.” Honeywell, 2021 WL 2493382, at *2, *5 (cleaned up).
This appeal requires us to decide the proper rule for the
calculation of settlement offsets under the FCA, a legal
question we decide de novo.
III.
The correct rule for settlement offsets is a component of
FCA damages liability, and therefore the threshold question is
whether the FCA provides a settlement offset rule. Because
“[a]ll legislative Powers” are vested in Congress, U.S. CONST.
art. I, § 1, the federal courts may fashion a federal common law
rule only in the “absence of an applicable Act of Congress,”
Clearfield Tr. Co. v. United States, 318 U.S. 363, 367 (1943);
see also United States v. Kimbell Foods, Inc., 440 U.S. 715,
727 (1979) (explaining that federal courts should create a
federal rule of decision only “when Congress has not spoken”).
Federal courts have limited jurisdiction, and due respect for the
legislature requires that we must ensure the meaning of a
statute runs out before supplying a common law rule to help
administer the statute’s remedies.
The FCA effectively created a tort cause of action for the
government. But the FCA makes no mention of either
settlement credits or joint liability. It states that a person who
makes a false claim to the government “is liable” to the United
States for “3 times the amount of damages which the
Government sustains because of the act of that person.” 31
U.S.C. § 3729(a)(1). The FCA says nothing at all about how to
address indivisible harms or whether joint and several liability
is appropriate. And a literal reading could suggest that because
a person is “liable” for the damages sustained by the
government based on that person’s actions, no offset for
settling parties is allowed.
9
That literal interpretation, however, would conflict with
United States v. Bornstein, in which the Supreme Court applied
joint and several liability. 423 U.S. 303, 314 (1976). A literal
reading would also conflict with the principle, long reflected in
the common law, that settlement with, or successful litigation
against, one party reduces the damages owed by other parties
who are jointly liable. When courts consider how to handle
settlements between a plaintiff and one of several joint
tortfeasors, they assume tort regimes must have some way of
adjusting damages when one has paid in part. See, e.g.,
McDermott, 511 U.S. at 208–11; Zenith Radio Corp. v.
Hazeltine Rsch., Inc., 401 U.S. 321, 343–46 (1971) (explaining
the various approaches to crediting partial settlement of
statutory tort claims); see also RESTATEMENT (SECOND) OF
TORTS § 886A cmt. m. We cannot conclude from the simple
use of the term “liable” in the FCA that Congress abrogated the
background assumption that at least some settlement credit is
appropriate. See Allen v. District of Columbia, 969 F.3d 397,
402 (D.C. Cir. 2020) (explaining that courts assume statutes’
continuity with “well established” common law principles
unless the statute “speaks[s] directly to the question addressed
by the common law”) (cleaned up).
In any event, the parties do not question whether joint and
several liability is appropriate under the FCA, and they assume
that common damages must be subject to some type of
settlement offset. A rule for allocating settlement credits is
necessary to resolve disputes between joint violators of the
FCA, and the text of the statute provides none.
Honeywell posits that even if the FCA’s text does not
provide an answer, its historical context does. Honeywell
maintains the FCA incorporates the pro tanto rule because
“[w]hen Congress enacted the False Claims Act in 1863, the
pro tanto approach was firmly established” as a background
10
principle of law. Because Congress enacts statutes against a
common law baseline, it is sometimes appropriate to interpret
statutory terms in light of common law principles and presume
Congress employs common law terms with their common law
meaning, absent a contrary indication in the statute. See
Morissette v. United States, 342 U.S. 246, 263 (1952)
(“[W]here Congress borrows terms of art in which are
accumulated the legal tradition and meaning of centuries of
practice, it presumably knows and adopts the cluster of ideas
that were attached to each borrowed word in the body of
learning from which it was taken.”). We accordingly presume
statutory torts share fundamental attributes of common law
torts when they incorporate traditional tort terms of art. See
e.g., Cimino, 3 F.4th at 418 (applying the common law of fraud
to interpret the FCA because “the term ‘fraudulent’ in the FCA
is a paradigmatic example of a statutory term that incorporates
the common-law meaning of fraud”) (cleaned up).
With respect to the appropriate settlement rule for the
FCA, however, the historical context does not settle the
interpretive question. First, the pro tanto rule is not part of the
definition of any common law term in the FCA. “The first
precondition of any term-of-art reading is that the term be
present in the disputed statute.” Borden v. United States, 141
S. Ct. 1817, 1828 (2021) (plurality opinion). Honeywell relies
exclusively on the statutory term “liable,” but that is merely a
general term meaning “[r]esponsible or answerable in law.”
Liable, BLACK’S LAW DICTIONARY (11th ed. 2019). By
providing liability for damages, the FCA does not use a term of
art, common law or otherwise, that necessitates a particular
settlement offset rule. Nor is a settlement offset rule an element
implicit in the common law of fraud, aspects of which are
adopted by the FCA. Cf. Univ. of Tex. Sw. Med. Ctr. v. Nassar,
570 U.S. 338, 347 (2013) (applying the traditional but-for
causation standard to Title VII retaliation claims by applying
11
“textbook tort law”). The text of the FCA includes no tort term
of art codifying the common law of settlement offsets from
1863, and therefore we have no basis to assume that Congress
incorporated the pro tanto rule through its use of the word
“liable.”
Moreover, examining the history the parties have
presented to this court, we note that what appears to have been
the prevailing common law rule in 1863 was much harsher than
the modern pro tanto rule. It is unclear whether a consensus on
settlement offsets existed in 1863. But to the extent we can
glean a consensus, it was a strict version of the “one satisfaction
rule,” according to which settlement of any amount with one
joint tortfeasor would bar all collection from the others. See
Lovejoy v. Murray, 70 U.S. (3 Wall.) 1, 17 (1865) (holding
future litigation is barred if the plaintiff “has received full
satisfaction, or that which the law must consider as such”);
Sheldon v. Kibbe, 3 Conn. 214, 220 (1819) (explaining a
plaintiff’s acceptance of satisfaction is deemed full satisfaction
and bars future litigation). Neither party advocates this harsh
rule, which has been thoroughly rejected by American courts.
RESTATEMENT (SECOND) OF TORTS § 885 cmt. b; see also
Zenith Radio Corp., 401 U.S. at 344 (noting the one satisfaction
rule has never been applied to a federal statutory cause of
action). In this context, there is simply no venerable common
law principle of settlement offsets that we can reasonably
presume is implied in the FCA. Cf. Allen, 969 F.3d at 403
(applying an implicit “well-established common-law
principle” that “is as old as the Republic”).
Nor have prior decisions of the Supreme Court, this court,
or other courts of appeals explicitly determined which
settlement offset rule should be applied to FCA damages.
Precedent establishes that liability under the FCA is joint and
several with no right to contribution among joint violators. See,
12
e.g., Mortgages, Inc. v. U.S. Dist. Ct. for Dist. of Nev., 934 F.2d
209, 212 (9th Cir. 1991) (per curiam) (“Where one or more
persons have committed a fraud upon the government in
violation of the FCA, each is joint and severally liable for the
treble damages and statutory penalty.”); id. at 213–14 (holding
that there is no right to contribution because the right is not
found in the FCA and there is no reason to imply such a right
of action). While the Supreme Court has applied the pro tanto
approach in an FCA case, it was not called upon to approve or
reject that rule as compared with the proportionate share
approach. Bornstein, 423 U.S. at 314. The question before us
today has not been answered by courts of appeals or the
Supreme Court.
IV.
Because the question of what settlement offset rule to
apply is not answered by the text of the FCA, the common law
background in 1863, or existing case law, we must establish the
correct rule in order to decide this case. A federal common law
rule is necessary in this context, and we conclude the pro tanto
rule is the appropriate measure of settlement offsets when
calculating damages under the FCA.
A.
The Article III courts have limited jurisdiction, and it is
long established that “[t]here is no federal general common
law” because federal courts cannot arrogate the power of the
states or Congress to make substantive rules of law. Erie R.R.
Co. v. Tompkins, 304 U.S. 64, 78 (1938). Nonetheless, since
Clearfield Trust Co. v. United States, 318 U.S. at 366–67, in
cases involving “the government’s proprietary interests” it has
been clear that federal courts have the “competence” to create
a federal common law rule. R. FALLON, J. MANNING, D.
MELTZER, & D. SHAPIRO, HART AND WECHSLER’S THE
13
FEDERAL COURTS AND THE FEDERAL SYSTEM 661 (7th ed.
2015). Federal courts create rules of decision when necessary
to protect “uniquely federal interest[s],” such as when “the
application of state law would frustrate specific objectives of
federal legislation.” Boyle v. United Techs. Corp., 487 U.S.
500, 507 (1988) (cleaned up).
As the Supreme Court has explained, a “precondition” for
applying federal law is a “significant conflict between some
federal … interest and the use of state law” which must be
“specifically shown.” Atherton v. FDIC, 519 U.S. 213, 218
(1997) (cleaned up); see also HART & WECHSLER, supra, at 661
(explaining that “application of state law is the proper default
position for federal courts”). The competence to create a
federal rule does not negate the “basic aspect of our federalism”
that the federal government always acts “against a background
of existing state law, and that federal law retains its incomplete
and interstitial nature.” Ernest A. Young, Preemption and
Federal Common Law, 83 NOTRE DAME L. REV. 1639, 1646
(2008) (cleaned up). Therefore, even areas of unique federal
interest “do not inevitably require resort to uniform federal
rules.” Kimbell Foods, 440 U.S. at 727–28. In exercising the
discretion to create a federal rule, federal courts must consider
whether such a rule is appropriate in light of the “nature of the
specific governmental interests” at stake and “the effects upon
them of applying state law.” 4 Id. at 728 (cleaned up).
4
See HART AND WECHSLER, supra, at 657 (explaining that federal
courts must first determine whether they have the “authority to apply
a federal common law rule” and then, “[i]f such authority exists,”
whether its exercise is “appropriate”); see also Henry J. Friendly, In
Praise of Erie—And of the New Federal Common Law, 39 N.Y.U. L.
REV. 383, 410–11 (1964) (explaining that the Clearfield Court
erroneously “jumped” the important question whether to fashion a
federal rule or follow state law).
14
Applying this framework, we have authority to create a
federal rule for FCA offsets, and we find that doing so is
necessary to carry out the federal interests Congress protected
in the FCA. Supplying an FCA settlement offset rule lies in the
heartland of the Clearfield line of cases.
First, by providing the federal government a cause of
action to remedy fraudulent claims, the FCA safeguards the
public fisc and protects the United States against “proprietary
injury.” Vt. Agency of Nat. Res. v. United States ex rel. Stevens,
529 U.S. 765, 771 (2000). The rights to recovery under the
FCA are analogous to the federal government’s contract rights,
long recognized as a “uniquely federal interest” that federal
courts have authority to protect by creating federal common
law. See Boyle, 487 U.S. at 504–05 (citing United States v.
Little Lake Misere Land Co., 412 U.S. 580, 592–94 (1973);
Nat’l Metro. Bank v. United States, 323 U.S. 454, 456 (1945)).
The rule for calculating settlement offsets under the FCA will
affect the federal government’s prosecution of false claims, the
costs and benefits of pursuing settlement, and the ultimate
amount of damages returned to the U.S. Treasury.
Second, we find that fashioning a federal rule is
appropriate because there is a “significant conflict” between
the federal interests protected by the FCA and “the use of state
law.” Atherton, 519 U.S. at 218. “[A]dopting state law would
adversely affect administration” of the FCA because the state
law of settlement offsets varies widely. 5 Kimbell Foods, 440
5
Our sister circuits have established federal rules for settlement
offsets in analogous contexts involving federal causes of action that
protect uniquely national interests. See, e.g., Singer, 878 F.2d at 599–
600 (establishing a federal rule of settlement offsets for federal
securities causes of action because “most securities fraud actions
involve multiple parties from various states” and the variety among
state laws “would lead to disparate results” in factually similar
15
U.S. at 730; see RESTATEMENT (SECOND) OF TORTS § 886A
cmt. m(3) (“Case authorities and statutes are … divided
[between pro tanto and proportionate share rules] and there is
no semblance of a consensus.”).
Variable settlement offset rules will make it difficult for
the government to vindicate the important federal interests
protected by the FCA. Without a uniform rule, the government
would not have a secure baseline against which to negotiate
settlements in cases involving multiple defendants and thorny
choice-of-law questions. The future liability of settling parties
and the government’s ultimate recovery would remain
uncertain. Cf. Clearfield Tr. Co., 318 U.S. at 367 (finding a
federal rule appropriate when applying state law “would
subject the rights and duties of the United States to exceptional
uncertainty”). And as the facts of this case demonstrate, the
choice of a settlement offset rule may have a substantial impact
on the damages the government can recover. This lack of
predictability is in tension with Congress’ precise calibration
of FCA liability, which involves treble damages, civil
penalties, and enumerated classes of liability. 6 See 31 U.S.C.
§ 3729(a)(1).
cases); Eichenholtz v. Brennan, 52 F.3d 478, 486 & n.14 (3d Cir.
1995) (crafting a federal rule for federal securities actions because
they “affect[] substantive federal rights”; “the issue is central to a
federal regulatory scheme”; and “adopting a state’s rule would lead
to disparate results”); In re Prudential of Fla. Leasing, Inc., 478 F.3d
1291, 1298–300 (11th Cir. 2007) (applying federal common law to
fill the interstices of the Bankruptcy Code with respect to settlement
bar rules).
6
On the flip side, parties contracting with the federal government
can have no reasonable expectation that their tort liability will be
governed by state law. Cf. Kamen v. Kemper Fin. Servs., Inc., 500
U.S. 90, 98 (1991) (noting that the state law default “is particularly
16
In light of the important federal interests protected by the
FCA and the particular need for uniformity in this context, we
find it necessary and appropriate to fashion a federal rule to
govern settlement offsets for FCA damages.
B.
Having concluded we must decide the offset settlement
rule under the FCA as a matter of federal common law, we
draw on McDermott to structure our analysis. In McDermott,
the Court decided what type of settlement credit was
appropriate in the admiralty context. In choosing between the
pro tanto and proportionate share rules, the Court outlined
three “paramount” considerations: (1) consistency with
relevant precedent; (2) promotion of settlement; and (3)
judicial economy. 7 McDermott, 511 U.S. at 211. With respect
to settlement offsets for calculating damages under the FCA,
the balance of these factors favors the pro tanto rule.
We first consider which rule promotes consistency with
the text and structure of the FCA and the precedent interpreting
it. This factor decisively favors the pro tanto approach. At the
outset, the pro tanto rule is at least compatible with the FCA.
strong” when “private parties have entered legal relationships with
the expectation that their rights and obligations would be governed
by state-law standards”).
7
We note that “equity” is not a separate factor in the McDermott
analysis, and therefore the district court erred in treating it as such.
See Honeywell, 502 F. Supp. 3d at 480. The Court considered the
“inequitable apportionments of liability” that might result from the
pro tanto approach, not because equity mattered to the abstract
question of the correct settlement offset rule, but because such
apportionments would be “contrary to” the comparative fault regime
in admiralty. McDermott, 511 U.S. at 214 (citing United States v.
Reliable Transfer Co., 421 U.S. 397 (1975)).
17
The Supreme Court applied it without comment in Bornstein,
although the Court was not asked to decide between the pro
tanto and proportionate share rules in that case. 423 U.S. at
314. Moreover, the government’s litigating position here—that
the pro tanto approach is inappropriate in this case but may be
appropriate in others—shows that neither party considers the
pro tanto approach incompatible with the FCA.
The pro tanto rule, however, is not just compatible with
the FCA; it is a better fit with the statute and the liability rules
that have been partnered with it. The FCA has been
consistently interpreted to impose joint and several liability
without a right to contribution. See Mortgages, Inc., 934 F.2d
at 212–13. Together these two rules mean that a person who
violates the FCA in a joint scheme may have to pay for all the
government’s trebled damages, and, even if that defendant is
the least responsible party, it cannot force the other violators to
pay their fair share. When administering joint and several
liability with no contribution, the court does not determine the
equitable assignment of damages.
In light of this statutory context and accompanying
liability rules, adopting the proportionate share rule to allocate
settlement offsets would be anomalous for the FCA in at least
two ways. First, liability would be joint and several if all parties
litigate, but in cases of partial settlement, courts would have to
decide relative culpability and assign damages based on fault.
This mismatch is usually avoided because jurisdictions and
statutory schemes that involve joint and several liability
without contribution generally also employ the pro tanto
approach. See Lewis A. Kornhauser & Richard L. Revesz,
Settlements Under Joint and Several Liability, 68 N.Y.U. L.
REV. 427, 440 (1993). Second, under joint and several liability,
the government cannot sue each party sequentially and collect
the full amount of damages from each party. But under the
18
proportionate share rule, the government could recover more
than its total damages solely because some parties settled.
The government suggests the proportionate share rule is
more compatible with the FCA’s punitive goals. The treble
damages in the FCA are “essentially punitive in nature” and
not just compensatory. See Vt. Agency of Nat. Res., 529 U.S. at
784. Applying the proportionate share rule, a court would
calibrate a party’s punishment to its relative culpability,
furthering, at least to some extent, the punitive effect of the
statute.
We recognize that in cases such as this where the
government has already recouped its full damages from settling
parties, a non-settling party like Honeywell will escape paying
damages under the pro tanto rule. 8 Nevertheless, consistent
with the FCA, the pro tanto rule leaves the government in the
driver’s seat to pursue and punish false claims according to its
priorities. The text and structure of the FCA make clear that
Congress left substantial control for prosecuting false claims to
the federal government. In addition to traditional agency
enforcement discretion, even when a person brings a qui tam
action under the FCA, the government may decide to maintain
the action itself or intervene and exercise substantial control
over the litigation. See, e.g., 31 U.S.C. § 3730(b)(1) (a qui tam
relator cannot voluntarily dismiss an FCA complaint without
the leave of the government); id. § 3730(b)(2) (government
decides whether to manage the litigation); id. § 3730(c)(2)(A)–
(B) (government may unilaterally dismiss or settle the case).
The pro tanto rule comports with the FCA because it allows
the federal government flexibility to pursue its enforcement
priorities. Instead of relying on courts to adjudicate relative
8
In the cases where a party settles for less than its share of liability,
the pro tanto rule will mean the non-settling defendant will be liable
for more than its proportionate share of the harm.
19
responsibility, the government can pursue settlement and/or
seek damages against each violator in line with its assessment
of relative fault.
Furthermore, our holding does not disturb the FCA’s civil
penalties—here potentially exceeding $500,000 according to
the government—which serve a punitive purpose and may in
some cases even exceed the statutory damages. See, e.g.,
United States ex rel. Bunk v. Gosselin World Wide Moving,
N.V., 741 F.3d 390, 395 (4th Cir. 2013). In sum, the first
McDermott factor strongly favors the pro tanto approach.
The second McDermott factor, the promotion of
settlement, is too inconclusive to provide guidance. Cf.
Honeywell, 502 F. Supp. 3d at 482–83 (finding no “clear
advantage” for either approach) (cleaned up); McDermott, 511
U.S. at 216 (same). We see no way to determine which rule
better promotes settlement. See RESTATEMENT (THIRD) OF
TORTS: APPORTIONMENT OF LIABILITY § 16 cmt. c (2000)
(“[T]o the extent that facilitating the complete voluntary
resolution of a suit before trial for the sake of judicial efficiency
is the goal, there is no reason to believe that either a pro tanto
or a comparative-share credit is preferable.”). The promotion
of settlement often turns on a complex intersection of factors
that are not readily ascertained nor easily balanced by courts. 9
The third factor, judicial economy, clearly favors the pro
tanto approach. The pro tanto rule does not require an
adjudication of comparative fault for its implementation—a
court must simply determine which damages are common and
9
Nevertheless, we have little trouble concluding the government’s
litigating position that courts should choose case-by-case between
the proportionate share and pro tanto rules would surely discourage
settlements by falling short of basic rule of law principles such as
consistency and predictability.
20
how much has already been paid by the settling parties. By
contrast, when applying the proportionate share approach, the
court must ascertain the proportion of fault borne by each party
to determine the proper settlement credit. Because under the
FCA courts apply joint and several liability without a right of
contribution, the calculation of proportionate fault would
introduce a new element into FCA litigation. As amicus curiae
the Chamber of Commerce pointed out, these difficult
determinations would often require summoning already settled
third parties back into the litigation for complex determinations
of relative fault.
The McDermott Court’s conclusion, in the context of
admiralty law, that “[t]he pro tanto rule … has no clear
advantage with respect to judicial economy” is not to the
contrary. 511 U.S. at 217. That conclusion was explicitly
premised on the need for “good faith hearings.” Id. at 216 (“The
pro tanto rule, if adopted without the requirement of a good-
faith hearing, would be easier to administer.”) If the pro tanto
rule were applied in admiralty cases, the court would still need
to conduct “good faith hearings” because in admiralty there is
a right to contribution and a court must ensure that early
settlements are fairly negotiated approximations of expected
liability. Id. at 213. But there is no right to contribution under
the FCA, and so there is no need for good faith hearings. See
Kornhauser & Revesz, 68 N.Y.U. L. REV. at 444 (recognizing
“[t]here is no reason to have good faith hearings in the absence
of a right of contribution”). Therefore, in the FCA context, the
pro tanto rule would substantially favor judicial economy.
In conclusion, pro tanto is the settlement offset rule that
best coheres with the FCA and the precedents interpreting it,
and applying this rule will generally promote judicial economy.
As a matter of federal common law, we find it is the appropriate
21
method to apply when offsetting settlement credits in FCA
cases.
***
In the False Claims Act, Congress created a vital
mechanism for the federal government to protect itself against
fraudulent claims. The FCA, however, provides no rule for
allocating settlement credits among joint fraudsters. Because
the FCA guards the federal government’s vital pecuniary
interests, and because state courts widely diverge over the
correct rule for settlement offsets, we find it appropriate to
establish a federal common law rule. The pro tanto rule best
fits with the FCA and the joint and several liability applied to
FCA claims. Honeywell is entitled to offset its common
damages in the amount of the government’s settlements from
the other parties. We therefore reverse and remand for further
proceedings consistent with this opinion.
So ordered.