New York’s False Claims Act, originally passed in 2007, is one of the strongest state civil false claims statutes. While the original version of the statute largely followed the language of the pre-2009 federal False Claims Act, subsequent amendments to the New York law have made it even tougher on fraud than its federal counterpart and even more favorable for qui tam whistleblowers.

Like the federal False Claims Act, the New York statute imposes liability against fraudfeasors for knowingly presenting false or fraudulent claims for payment and/or approval by the state of New York. It also prohibits knowingly making or using false records or statements material to a false or fraudulent claim. Moreover, and also akin to the federal law, the New York False Claims Act provides for “treble” (or, in other words, triple) damages in the event that liability is determined. One of the latest proposed additions to the New York law, which are being backed by New York’s Attorney General, Eric T. Schneiderman, relates to this treble damages provision.

Specifically, the proposed regulation clarifies the process for accomplishing trebling and reads as follows:

400.6 Application of the damage multiplier

The state or a local government’s damages shall be trebled or doubled pursuant to section one hundred eighty-nine of the New York False Claims Act before any subtractions are made for compensatory payments received by the government from any source, including but not limited to the defendant, or before any subtractions are otherwise made because of any offset or credit received by the government from any source, including but not limited to the defendant.

The proposed regulation is aimed at tackling a key question unresolved by the text of the federal False Claims Act. Namely, should the government’s damages be trebledbefore any compensatory payments, offsets, or credits are subtracted, or after such deductions are made? In other words, should gross or net trebling be used?

The federal government’s position as it applies to the federal False Claims Act has been that gross trebling is appropriate. Although the language of the federal statute is silent on this issue, the government’s position is buttressed by a 1976 decision of the U.S. Supreme Court, which held that gross multiplying was appropriate. Namely, in U.S. v. Bornstein, 423 U.S. 303 (1976), the Supreme Court noted that the federal False Claims Act, which then provided for double rather than triple damages, “speaks of doubling ‘damages’ and not doubling ‘net damages’ or ‘uncompensated damages.” Id. at n.10. According to the Bornstein Court, this approach comported with legislative history and common sense. Not only does gross multiplying compensate the federal government “completely for the costs, delays, and inconveniences occasioned by fraudulent claims[,]” it disallows fraudfeasors from ducking the multiplier altogether by taking advantage of payments made by other parties or by “tendering the amount of the undoubled damages at any time prior to judgment.” Id. at 315-316. Thus, the Supreme Court concluded that “the Government’s actual damages are to be doubled before any subtractions are made for compensatory payments previously received by the Government from any source.” Id. at 316.

Earlier this year, however, the Seventh Circuit came to the opposite conclusion in discussing the treble damages provision of the current federal False Claims Act. In U.S. v. Anchor Mortgage Corp., 711 F.3d 745 (7th Cir. 2013), the Seventh Circuit held that the net trebling approach was appropriate and consistent with the traditional “contract measure of loss.” Id. at 750. The Seventh Circuit heavily relies on a footnote in Bornstein, wherein the Supreme Court defines actual damages as “equal to the difference between the market value of the [goods] it received and retained and the market value that the [goods] would have had if they had been of the specified quality.” Id. (citing Bornstein, 423 U.S. 303 at n.13). According to the Court of Appeals, and contrary to the position of the federal government, that footnote language is not dictum and is consistent with the “common law’s established approach to determining damages.” Id. The Seventh Circuit did not address the legislative history and policy arguments outlined by the Supreme Court in Bornstein.

As illustrated by Anchor Mortgage, the answer to this question can have a significant impact on the monies received by the government and, in turn, qui tam whistleblowers. By adopting the net, rather than gross, trebling approach in Anchor Mortgage, the damages owed to the federal government were reduced by approximately forty percent. 711 F.3d at 748-749.

If the gross trebling approach is codified in the New York False Claims Act, New York state and local governments–as well as the brave whistleblowers who help expose fraud—will be more richly compensated for the damages caused by deceptive contractors. Furthermore, unscrupulous companies will not be able to render the penalties provision of the state statute effectively meaningless by making pre-judgment payments of un-multiplied damages.

The proposed regulation was announced on October 23, 2013, which commenced a 45-day comment period. Information on the process for submitting comments is available at  http://www.ag.ny.gov/whistleblowers/false-claims-act.