     10-3297 (L)
     Feldman v. van Gorp et ano.


 1                        UNITED STATES COURT OF APPEALS

 2                            FOR THE SECOND CIRCUIT

 3                                 August Term, 2011

 4   (Argued:    January 30, 2012                 Decided: September 5, 2012)

 5                  Docket Nos. 10-3297( Lead) 11-975 (Con)

 6                   -------------------------------------


 7             United States of America ex rel. Daniel Feldman,

 8                                 Plaintiff-Appellee,

 9                                        - v -

10        Wilfred van Gorp and Cornell University Medical College,

11                            Defendants-Appellants.*


12   -------------------------------------

13   Before:      SACK, RAGGI, and CHIN, Circuit Judges.

14               Appeal from a judgment of the United States District

15   Court for the Southern District of New York (William H. Pauley

16   III, Judge) denying the defendants' motion for judgment as a

17   matter of law and their motion for a new trial following a jury

18   verdict partially in favor of the plaintiff on his claims brought

19   on behalf of the government pursuant to the False Claims Act, 31

20   U.S.C. § 3729 et seq., and awarding principally $855,714 in



           *
             The clerk's office is respectfully directed to amend the
     official caption of this case as shown above.
 1   treble actual damages.   We conclude that: 1) where the government

 2   has provided funds for a specified good or service only to have

 3   defendant substitute a non-conforming good or service, a court

 4   may, upon a proper finding of False Claims Act liability,

 5   calculate damages to be the full amount of the grant payments

 6   made by the government after the material false statements were

 7   made; 2) there was sufficient evidence from which a reasonable

 8   jury could determine that the false statements at issue were

 9   material to the government's funding decision; and 3) the

10   district court did not abuse its discretion in excluding evidence

11   of inaction on the part of the National Institutes of Health in

12   response to the plaintiff's complaint regarding the fellowship

13   program in which he had been enrolled.

14             Affirmed.

15   Appearances:              TRACEY A. TISKA, R. Brian Black, Eva L.
16                             Dietz, on the brief) Hogan Lovells US
17                             LLP, New York, New York, for Defendant-
18                             Appellant Cornell University.

19                             Nina M. Beattie, Brune & Richard LLP,
20                             New York, New York, for Defendant-
21                             Appellant Wilfred van Gorp.

22                             MICHAEL J. SALMANSON (Scott B. Goldshaw,
23                             on the brief) Salmanson Goldshaw, P.C.,
24                             Philadelphia, Pennsylvania, for
25                             Plaintiff-Appellee.

26                             Jean-David Barnea, Rebecca C. Martin,
27                             Sarah S. Normand, Assistant United
28                             States Attorneys, of counsel, for Preet
29                             Bharara, United States Attorney for the
30                             Southern District of New York, for
31                             Amicus Curiae, The United States of
32                             America.

                                      2
 1   SACK, Circuit Judge:

 2             The defendants appeal from a judgment of the United

 3   States District Court for the Southern District of New York

 4   (William H. Pauley III, Judge) denying their motion for judgment

 5   as a matter of law and their motion for a new trial following a

 6   jury verdict partially in favor of the plaintiff on his claims

 7   regarding the misuse of a research training grant brought on

 8   behalf of the government pursuant to the False Claims Act, 31

 9   U.S.C. § 3729 et seq., and awarding principally $855,714 in

10   treble actual damages.   We conclude that: 1) where the government

11   has provided funds for a specified good or service only to have

12   defendant substitute a non-conforming good or service, a court

13   may, upon a proper finding of False Claims Act liability,

14   calculate damages to be the full amount of the grant payments

15   made by the government after the material false statements were

16   made; 2) there was sufficient evidence from which a reasonable

17   jury could determine that the false statements at issue were

18   material to the government's funding decision; and 3) the

19   district court did not abuse its discretion in excluding evidence

20   of inaction on the part of the National Institutes of Health in

21   response to the plaintiff's complaint regarding the fellowship

22   program in which he had been enrolled.




                                      3
 1                                BACKGROUND

 2              In 1997, appellants Cornell University Medical College

 3   ("Cornell") and Dr. Wilfred van Gorp, a professor of psychiatry

 4   at Cornell, applied for funding from the Ruth L. Kirschstein

 5   National Research Service Award Institutional Research Training

 6   Grant program, also known as the "T32" grant program, of the

 7   National Institutes of Health ("NIH").    The T32 program funds

 8   pre- and post-doctoral training programs in biomedical,

 9   behavioral, and clinical research.    T32 grants are meant to "help

10   ensure that a diverse and highly trained workforce is available

11   to assume leadership roles related to the Nation's biomedical and

12   behavioral research agenda."   NIH Guide, "NIH National Research

13   Service Award Institutional Research Training Grants," at 1 (May

14   16, 1997), United States ex rel. Feldman v. Van Gorp, No. 10-

15   3297, Joint Appendix ("J.A.") 2437 (2d Cir. Jan. 26, 2012) ("NIH

16   Guide").   Positions funded through T32 grants may not be used for

17   study leading to clinically-oriented degrees, "except when those

18   studies are a part of a formal combined research degree program,

19   such as the M.D./Ph.D."   Id. at 2, J.A. 2438.   Instead, funded

20   programs must train their fellows "with the primary objective of

21   developing or extending their research skills and knowledge in

22   preparation for a research career."   Id.

23              Institutions applying for T32 grants undergo a two-

24   tiered review process.    It begins with a review of the proposal

                                       4
 1   by a twenty-member "Initial Research Group" ("IRG"), also called

 2   a "peer review committee."   IRG members are independent experts

 3   in scientific fields related to that of the grant application

 4   under review; they are not NIH employees.   Each member scores

 5   applications based on his or her view of its scientific or

 6   technical merit guided by specified criteria, including, among

 7   other factors: the program director's and faculty's training

 8   records, as determined by the success of former trainees; the

 9   objective, design, and direction of the program; the caliber of

10   the faculty; the institutional training environment, including

11   the commitment of the institution to training and the resources

12   available to trainees; and the institution's proposed plans for

13   recruiting and selecting high-quality trainees.   The scores are

14   then averaged to arrive at an IRG "priority score."   Testimony of

15   Dr. Robert Bornstein at 1190-91, July 21, 2010 ("Bornstein

16   Testimony"), J.A. 1955.   This score is included with the IRG

17   members' written comments in a summary statement, which is

18   transmitted to the NIH.

19               The "second tier" of review is performed by the

20   advisory council of the appropriate constituent organization of

21   the NIH, in this case the National Institute of Mental Health

22   ("NIMH").   The advisory council ranks the applications by

23   priority score, and establishes a "pay line" at the point in the

24   list of applications where there is no more funding available;

25   only the applications above the "pay line" are recommended to the

                                       5
 1   director of the funding institute as potential grant recipients.

 2   "The role of the advisory council is not to second-guess the

 3   scientific review of the IRG.   Rather, [the council] reviews the

 4   applications to ensure that they further the goals and interests

 5   of the awarding institute.   Thus, the IRG review and the

 6   resulting high-priority score are keys to NIH funding."     Id. at

 7   1190, J.A. 1955-56.

 8              Once an application has placed above the "pay line,"

 9   the advisory council makes recommendations based on the

10   scientific merit of the proposal, as judged by the IRG, and the

11   relevance of the proposal to the awarding institute's programs

12   and priorities.   Funding is typically approved by the NIH for one

13   year, and recipient institutions are eligible for up to four

14   years of additional funding.

15              In order to renew a T32 grant, the recipient

16   institution (in this case Cornell) must submit an annual renewal

17   application and a progress report detailing the status of its

18   project.   In contrast with initial grant applications, renewal

19   applications are reviewed solely by the NIH on a noncompetitive

20   basis.   The NIH considers the progress made under the grant and

21   the grant's budget.   By regulation, the annual progress report

22   must contain a "comparison of actual accomplishments with the

23   goals and objectives established for the period," and must

24   specify "[r]easons why established goals were not met," if indeed

25   they were not. 45 C.F.R. § 74.51(d)(1)-(2).

                                      6
 1             Recipient institutions must also "immediately notify"

 2   NIH of "developments that have a significant impact" on the

 3   research program, including "problems, delays, or adverse

 4   conditions which materially impair the ability to meet the

 5   objectives of the award."   Id. § 74.51(f).    This notification

 6   must also include a "statement of the action taken or

 7   contemplated, and any assistance needed to resolve the

 8   situation."   Id.; see also Draft OIG Compliance Program Guidance

 9   for Recipients of PHS Research Awards, 70 Fed. Reg. 71312-01,

10   71320 (Nov. 28, 2005) ("Prompt voluntary reporting will

11   demonstrate the institution's good faith and willingness to work

12   with governmental authorities to correct and remedy the problem.

13   In addition, reporting such conduct may be considered a

14   mitigating factor by the responsible law enforcement or

15   regulatory office . . . .").

16             Cornell's initial grant application at issue here

17   sought funding for a fellowship program entitled "Neuropsychology

18   of HIV/AIDS Fellowship."    Van Gorp Grant Application at 1, J.A.

19   2254 (April 24, 1997) ("Grant Application").    The application

20   explained that the two-year fellowship would train as many as six

21   post-doctoral fellows at a time in "child and adult clinical and

22   research neuropsychology with a strong emphasis upon research

23   training with HIV/AIDS."    Id. at 2, J.A. 2255.   The training

24   program would, according to the application, build on the Cornell

25   faculty's extensive research into the neuropsychology of

                                       7
 1   HIV/AIDS, which included projects examining distress levels in

 2   HIV-AIDS patients during the course of their illness, the

 3   relationship between the neuropsychology of HIV/AIDS and

 4   patients' abilities to function at work or in school, and the

 5   possibility of using neuropsychological testing to predict

 6   whether AIDS patients will suffer from dementia.       The

 7   application further explained that van Gorp would serve as the

 8   program director, and that he had a "long history of successful

 9   research, training and mentoring of students in HIV[] related

10   work."   Id. at 40, J.A. 2295.

11              The 123-page grant application outlined the

12   fellowship's curriculum in detail.     Fellows would be required to

13   take "several formal, core didactic courses," and a number of

14   elective courses.   Id. at 45, J.A. 2300.     In the first year of

15   the fellowship, fellows would enroll in five core courses, some

16   of which "have been designed specifically for the HIV

17   Neuropsychology Fellowship."     Id., J.A. 2300.   These core courses

18   would be supplemented by a "large number of courses, lectures,

19   neuroscience educational programs, as well as other seminars in a

20   variety of sub-speciality areas."      Id.   The curriculum for the

21   second year, which included four core courses, would allow

22   fellows to "develop more independent research skills and devote

23   more time to their HIV research."      Id.   The fellows' progress

24   under the grant would be monitored monthly by a formal training

25   committee comprised of several faculty members, as "[o]ngoing

                                        8
 1   evaluation of the curriculum, trainees and faculty is an integral

 2   part of the training program."   Id. at 48, J.A. 2303.

 3              The Cornell grant application identified a list of

 4   fourteen faculty members who would serve as "Key Personnel,"

 5   which the NIH defined as "individuals who contribute to the

 6   scientific development or execution of the project in a

 7   substantive way."   NIH Grant Application Instructions at 26, J.A.

 8   2612 (June 8, 1999).   The application described in detail some of

 9   these research projects.   It also asserted, "Our faculty has a

10   solid track record in quality and productive research in brain-

11   behavior issues, including research in HIV/AIDS-related research

12   [sic]."   Grant Application at 48, J.A. 2303.   And the application

13   identified additional institutions which would serve as clinical

14   resources, including Cornell University, Memorial Sloan-Kettering

15   Cancer Center, St. Vincent's Hospital, and Gay Men's Health

16   Crisis Center.

17              In describing the fellowship program's commitment to

18   research training, the grant application explained that "the

19   majority of [the fellows'] clinical work will be with persons

20   with HIV infection."   Grant Application at 44, J.A. 2299.

21   Fellows would "devote an average of 75% of their time to research

22   and an average of 25% [of their] time to clinical work with

23   persons with HIV/AIDS and other neuropsychiatric disorders."    Id.

24              The IRG gave Cornell's grant application a high

25   priority score, and the NIH subsequently approved funding for two

                                      9
 1   fellows for the fiscal year beginning September 30, 1997, with

 2   the possibility of additional funding for up to four additional

 3   years.   Cornell submitted renewal applications in each of the

 4   following four years, from fiscal year 1999 (July 1, 1998,

 5   through June 30, 1999) to fiscal year 2002 (July 1, 2001, through

 6   June 30, 2002), all of which the NIH approved.     In the

 7   accompanying annual progress reports, Cornell and van Gorp

 8   indicated that there had been no material alterations to the

 9   program as described in the original grant application.

10                In the renewal application for the second renewal year

11   (the third year overall), for example, Cornell and van Gorp wrote

12   that "[a]ll core and supporting faculty listed in our original

13   application are continuing. . . .      There have been no alterations

14   in the courses or training program from that listed in the

15   original application, except for the addition of two [specified]

16   courses . . . ."    1999 Progress Report at 7, J.A. 2402 (January

17   19, 1999).    The renewal application also explained that the

18   program had been relocated from Cornell's White Plains campus to

19   its New York City (Manhattan) campus in order to provide fellows

20   with "immediate access to subjects and patients who have

21   HIV/AIDS."    Id.   The renewal applications for the fourth and

22   fifth year stated that "[t]he core structure of our training

23   program has remained the same as in years past and to that

24   described in our initial application."     2000 Progress Report at

25   4, J.A. 2411 (January 24, 2000); 2001 Progress Report at 5, J.A.

                                       10
 1   2422 (January 22, 2001).   The NIH approved each of these renewal

 2   applications.

 3             In September 1998, at about the time the first renewal-

 4   year began, Daniel Feldman, the plaintiff,1 was selected by

 5   Cornell to participate in the fellowship program.   He left the

 6   program in December 1999, before the completion of his two-year

 7   fellowship.   Other fellows who participated in the program

 8   included Elizabeth Ryan, Clifford Smith, Kimberly Walton Louis,

 9   and Evan Drake.   At trial, Feldman presented evidence that the

10   actual fellowship deviated in many ways from that described in

11   the Grant Application, and that Cornell and van Gorp failed to

12   inform NIH of these deviations.

13             Testimony presented at trial indicated that some of the

14   faculty members identified as "Key Personnel" in the initial

15   application did not in fact contribute in any substantive way to

16   the fellowship program.    Van Gorp acknowledged that the

17   contributions to the program of two of these faculty members, Dr.

18   Tatsuyki Kakuma and Dr. Michael Giordano, were considerably

19   limited, if not entirely eliminated, by the fact that the two

20   doctors were not in physical proximity to the fellows during the

21   grant period.   Many fellows, according to their testimony, had

22   little or no interaction with the remaining key personnel, and


          1
             Because this suit is being brought by Feldman on behalf
     of the United States, Feldman is technically the "plaintiff-
     relator." See infra, note [3]. We nonetheless refer to him
     simply as the "plaintiff."

                                       11
 1   were unaware that these faculty members were or were supposed to

 2   be available as resources.   In addition, according to this

 3   testimony, fellows were largely unaware of research opportunities

 4   at medical centers other than Cornell.

 5              There was also testimony in the district court to the

 6   effect that Cornell and van Gorp failed to notify NIH that the

 7   curriculum outlined in the initial grant application was never

 8   implemented.   Several core courses identified in the application

 9   were not regularly conducted for fellows, and fellows were not

10   informed that these courses were a required component of the

11   program.   Moreover, according to this testimony, fellows were

12   never evaluated or supervised by the training committee referred

13   to in the Grant Application.

14              Feldman also presented evidence that the research and

15   clinical training described in the initial grant application

16   differed significantly from the actual training received.     NIH

17   rules provide that fellows in a T32 program "must devote their

18   time to the proposed research training and must confine clinical

19   duties to those that are an integral part of the research

20   training experience."   NIH Guide at 3, J.A. 2439; T32 Training

21   Grant Announcement at 9, J.A. 2568 (June 16, 2006).   And, in

22   accordance with these requirements, the grant application stated

23   that "the majority of [the fellows’] clinical work will be with

24   persons with HIV infection."   Grant Application at 44, J.A. 2299.

25   Further, in explaining the training program's relocation from

                                     12
 1   White Plains to Manhattan, the third-year renewal application

 2   explained that "[f]ellows [would be] housed within a large,

 3   medical/surgical setting with immediate access to subjects and

 4   patients who have HIV/AIDS."    1999 Progress Report at 7, J.A.

 5   2402.

 6                But, as the plaintiff summarizes the trial testimony,

 7   out of the 165 clinical cases that the fellows saw during their

 8   fellowship, only three involved HIV-positive patients.2    Pl.'s

 9   Br. at 22.    Several fellows testified that much of the research

10   that they performed under the grant program had no relation to

11   HIV or AIDS at all.    For example, Clifford Smith testified that

12   the research projects he worked on under the T32 grant were

13   primarily related to epilepsy and aging, and did not involve an

14   HIV population.    Out of the eight research projects that Evan

15   Drake worked on during his fellowship, he said, only one focused

16   specifically on HIV.    Feldman similarly told the court that he

17   worked on only one HIV-focused project during his time as a

18   fellow.

19                In July 2001, after he had left the program, Feldman

20   submitted a letter to the NIH complaining about the program's

21   focus on clinical work rather than research, and the fellows'



             2
             The parties stipulated that of Ryan's 32 clinical
     patients, two were HIV positive; of Smith's 35 clinical patients,
     none were HIV positive; of Louis's 23 patients, none were HIV
     positive; of Drake's 48 patients, none were HIV positive; and of
     Feldman's 27 patients, one was HIV positive.

                                       13
 1   limited access to HIV-positive patients.    In March 2002, he

 2   submitted another letter to the NIH, again complaining that the

 3   fellowship program deviated from its description in the initial

 4   grant application.    In response, the NIH asked Cornell to conduct

 5   an investigation of the complaint, which Cornell completed in

 6   June 2003.    Cornell then sent Feldman a letter informing him that

 7   the investigation uncovered no wrongdoing.

 8                On October 14, 2003, Feldman filed a qui tam complaint

 9   pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729 et

10   seq.,3 alleging that Cornell and van Gorp made false claims to

          3

                  In a qui tam action, a private plaintiff,
                  known as a relator, brings suit on behalf of
                  the Government to recover a remedy for a harm
                  done to the Government. See United States ex
                  rel. Eisenstein v. City of New York, [556
                  U.S. 928, 932] (2009) (describing qui tam
                  actions under the False Claims Act, 31 U.S.C.
                  § 3729 et seq.); see also Black's Law
                  Dictionary 1282 (8th ed. 2004) (defining "qui
                  tam action" as "[a]n action brought under a
                  statute that allows a private person to sue
                  for a penalty, part of which the government
                  or some specified public institution will
                  receive"). Qui tam plaintiffs, even if not
                  personally injured by a defendant's conduct,
                  possess constitutional standing to assert
                  claims on behalf of the Government as its
                  effective assignees. There is, however, no
                  common law right to bring a qui tam action;
                  rather, a particular statute must authorize a
                  private party to do so.
     Woods v. Empire Health Choice, Inc., 574 F.3d 92, 97-98 (2d Cir.
     2009) (footnote and some citations omitted; second brackets in
     original).

          Where the United States has elected not to proceed with the
     action, as here, the relator is entitled personally to recover

                                       14
 1   the United States in the Grant Application and in the four

 2   renewal applications.   Feldman alleged that statements made in

 3   these applications were false because the fellowship's

 4   curriculum, resources, faculty members, and training differed

 5   significantly from that described in the application, and in the

 6   subsequent renewal applications representing that no changes had

 7   been made to the program.   The complaint was unsealed in April

 8   2007, after the United States declined to intervene in this

 9   action.   See Cook County v. United States ex rel. Chandler, 538

10   U.S. 119, 122 (2003) ("The relator must inform the Department of

11   Justice of her intentions and keep the pleadings under seal for

12   60 days while the Government decides whether to intervene and do

13   its own litigating." (citing 31 U.S.C. § 3730(b)(2)-(c))).

14               On January 9, 2009, after discovery had been completed,

15   Cornell and van Gorp moved for summary judgment.   On December 7,

16   2009, the district court denied the motion, concluding that there

17   were genuine issues of material fact as to whether the defendants

18   made false statements in both the initial grant application and

19   the renewal applications, and whether those statements were

20   material to the funding decisions.    United States ex rel. Feldman

21   v. Van Gorp ("Feldman I"), 674 F. Supp. 2d 475, 482-83 (S.D.N.Y.

22   2009).    The district court also concluded that the plaintiff need



     between 25 and 30 percent of the proceeds of the action or
     settlement, plus reasonable attorney's fees. See 31 U.S.C.
     § 3730(d)(2).

                                      15
 1   not establish actual damages to the government as an element of

 2   an FCA claim because that statute's provision of civil penalties

 3   for false and fraudulent claims allowed courts to "find a

 4   violation even in the absence of proof of damages to the United

 5   States."   Id. at 481.   The court did not address, however,

 6   whether Feldman's recovery would be limited to statutory damages.

 7              On December 18, 2009, the defendants moved for

 8   reconsideration of the summary judgment decision, arguing that

 9   the district court had erred in failing to address the issue of

10   whether Feldman should be limited to statutory penalties because

11   he had not presented sufficient evidence of actual damages to the

12   United States.   On May 3, 2010, the district court denied the

13   motion, explaining that although the damages to the United States

14   could not be calculated in the same way they would be in a

15   standard breach-of-contract action because no tangible benefit

16   had been received, the plaintiff would not be limited to

17   statutory damages.   United States ex rel. Feldman v. Van Gorp

18   ("Feldman II"), No. 03 Civ. 8135, 2010 WL 1948592, at *1-*2, 2010

19   U.S. Dist. LEXIS 47039, at *4-*6 (S.D.N.Y. May 3, 2010).    The

20   court said that the "'benefit of the bargain' to the government

21   is providing funds to recipients who best fit its specified

22   criteria and that this benefit is lost when funds are diverted to

23   less eligible recipients."   Id. at *2, 2010 U.S. Dist. LEXIS

24   47039, at *4-*5.   Therefore, "if the fact-finder concludes that

25   the government would not have awarded the grant absent the false

                                      16
 1   claims, it may properly conclude that the measure of damages is

 2   the total amount the government paid."   Id., 2010 U.S. Dist.

 3   LEXIS 47039, at *6.

 4             Before trial, Feldman submitted a motion in limine to

 5   exclude evidence including that of NIH's inaction towards Cornell

 6   and van Gorp in response to Feldman's complaints about the

 7   fellowship program.   On July 8, 2010, the district court granted

 8   Feldman's motion to exclude that evidence.   The court concluded

 9   that the evidence of NIH's inaction was irrelevant and therefore

10   inadmissible under Rule 402 because "no discovery was conducted

11   concerning the standards [NIH used] to determine the existence of

12   misconduct and whether those standards are at all similar to the

13   elements of an FCA claim."   United States ex rel. Feldman v. van

14   Gorp ("Feldman III"), No. 03 Civ. 8135, 2010 WL 2911606, at *3,

15   2010 U.S. Dist. LEXIS 73633, at *7 (S.D.N.Y. July 8, 2010).

16   Moreover, the court concluded, even if "marginally relevant," the

17   evidence would have been excluded pursuant to Rule 403 because of

18   the possibility that it would confuse or mislead the jury.4     Id.

19             The case was tried to a jury for eight days in July

20   2010, resulting in a partial verdict for Feldman.   The jury found

21   the defendants not liable for false statements in the Grant



          4
             The district court similarly excluded evidence of
     inaction on the part of the New York State Department of
     Education and the American Psychological Association, but the
     defendants do not challenge the exclusion of that evidence on
     appeal.

                                     17
 1   Application and the first renewal application, but found

 2   liability based on the renewal applications for the third, fourth

 3   and fifth years of the grant, i.e., the second, third and fourth

 4   renewal years.   On August 3, 2010, the district court awarded

 5   actual damages in treble the amount NIH paid for the last three

 6   renewal years of the grant –- the trebling being provided for in

 7   the FCA, 31 U.S.C. § 3729(a)(1) -- totaling $855,714.   The

 8   judgment also included statutory penalties of $32,000, for a

 9   total of $887,714.   The district court also awarded to the

10   plaintiff $602,898.63 in attorney's fees, $25,862.15 in costs,

11   and $3,121.47 in expenses.

12               On August 25, 2010, the defendants filed a motion for

13   judgment as a matter of law under Rule 50(b), or in the

14   alternative, for a new trial pursuant to Rule 59.   The defendants

15   argued that there was insufficient evidence from which the jury

16   could properly have concluded that the false statements at issue

17   were material to the NIH's decisions to renew the T32 grant, and

18   that the court should grant judgment as a matter of law, or that

19   such a conclusion was against the weight of the evidence and

20   warranted a new trial.   The defendants also argued that the

21   district court erred in determining as a matter of law that

22   damages were equal to the entire grant amounts for the years in

23   which liability was found rather than submitting that question to

24   the jury.



                                      18
 1              The district court denied this motion on December 9,

 2   2010.   United States ex rel. Feldman v. van Gorp ("Feldman IV"),

 3   No. 03 Civ. 8135, 2010 WL 5094402, at *5, 2010 U.S. Dist. LEXIS

 4   130358, at *14-*15 (S.D.N.Y. Dec. 9, 2010).    The court concluded

 5   that Feldman had presented sufficient evidence for the jury to

 6   conclude that the false statements were material to the NIH's

 7   funding decisions, noting that NIH's guidelines and instructions

 8   on the renewal applications unambiguously stated that it should

 9   be notified of any changes made to the grant program.   Id. at *2-

10   *5, 2010 U.S. Dist. LEXIS 130358, at *4-*14.   The district court

11   also relied on its opinion in Feldman III to deny the motion for

12   a jury trial on damages.   Id. at *5, 2010 U.S. Dist. LEXIS

13   130358, at *13-*15.

14              The defendants appeal.

15                               DISCUSSION

16              The defendants contend that: (1) the district court

17   erred in its methodology for determining damages and in

18   determining the amount of those damages, as a matter of law; (2)

19   the jury did not have sufficient evidence from which to conclude

20   that the false statements at issue were material to the funding

21   decision; and (3) the district court erred in excluding evidence

22   of NIH's "inaction" in response to Feldman's complaint.

23              I. Damages

24              The False Claims Act prohibits a person from "knowingly

25   present[ing], or caus[ing] to be presented, [to an officer or

                                     19
 1   employee of the United States Government,] a false or fraudulent

 2   claim for payment or approval."    31 U.S.C. § 3729(a)(1)(A).

 3   Liability under the Act also requires a showing of materiality.5

 4   Under the Act as currently in force, "the term 'material' means

 5   having a natural tendency to influence, or be capable of

 6   influencing, the payment or receipt of money or property."

 7   Id. § 3729(b)(4); see also Neder v. United States, 527 U.S. 1, 16

 8   (1999) ("In general, a false statement is material if it has a

 9   natural tendency to influence, or [is] capable of influencing,

10   the decision of the decisionmaking body to which it was

11   addressed." (brackets in original; internal quotation marks

12   omitted) (criminal fraud case)).

13             The FCA provides for damages equal to "3 times the

14   amount of damages which the Government sustains because of the

15   act of that person," in addition to a "civil penalty."    31 U.S.C.

16   § 3729(a)(1).   The Act does not specify how damages are to be

17   calculated, but the Supreme Court has recognized that the purpose

18   of damages, even as multiplied, under the Act is to make the


          5
             In 2009, Congress amended the False Claims Act to add a
     specific requirement that to be actionable a false statement must
     be material. 31 U.S.C. § 3729(a)(1)(B). It purports to apply
     prospectively and therefore would not apply to this case. See
     Feldman I, 674 F. Supp. 2d at 480. Never prior to that enactment
     and absent its materiality provision did we explicitly require a
     showing of materiality in FCA cases, although six of the seven
     circuits to address the issue did. See id. (citing decisions).
     We need not decide here whether a showing of materiality was
     required because, assuming that it was, the requirement has been
     met, as we explain in Part II, below.


                                       20
 1   government "completely whole" for money taken from it by fraud.

 2   United States ex. rel. Marcus v. Hess, 317 U.S. 537, 551-52

 3   (1943), superseded by statute as recognized by United States ex

 4   rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2d Cir. 2010)

 5   ("We think the chief purpose of the statutes here [predecessors

 6   of the current False Claims Act, providing for double rather than

 7   treble damages] was to provide for restitution to the government

 8   of money taken from it by fraud, and that the device of double

 9   damages plus a specific sum was chosen to make sure that the

10   government would be made completely whole.").   Because the

11   district court here determined that damages could be established

12   as a matter of law, we review that conclusion de novo.     See

13   Bessemer Trust Co., N.A. v. Branin, 618 F.3d 76, 85 (2d Cir.

14   2010) (stating that where the district court has determined

15   damages, we review its application of legal principles de novo

16   and its factual findings for clear error).

17             The question of how damages should be measured in an

18   FCA case where "contracts entered into between the government and

19   the Defendants did not produce a tangible benefit to the

20   [government]," United States ex. rel. Longhi v. United States,

21   575 F.3d 458, 473 (5th Cir. 2009), is one of first impression in

22   this Court.   The defendants argue both that the district court

23   erred in concluding that application of the standard benefit-of-

24   the-bargain calculation as a methodology for determining damages

25   was inappropriate in this case, and that it erred in deciding the

                                     21
 1   amount of damages as a matter of law based on the jury's verdict,

 2   rather than allowing the jury to assess the amount of damages

 3   due.

 4   A.   Proper Measure of Damages

 5              In most FCA cases, damages are measured as they would

 6   be in a run-of-the-mine breach-of-contract case –- using a

 7   "benefit-of-the-bargain" calculation in which a determination is

 8   made of the difference between the value that the government

 9   received and the amount that it paid.   See United States v.

10   Foster Wheeler Corp., 447 F.2d 100, 102 (2d Cir. 1971)

11   (collecting cases); cf. Terwilliger v. Terwilliger, 206 F.3d 240,

12   248 (2d Cir. 2000) ("[S]o far as possible, [New York contract]

13   law attempts to secure to the injured party the benefit of his

14   bargain, subject to the limitations that the injury -- whether it

15   be losses suffered or gains prevented -- was foreseeable, and

16   that the amount of damages claimed be measurable with a

17   reasonable degree of certainty and, of course, adequately

18   proven." (internal quotation marks omitted)).   This method of

19   calculation is employed, for example, when the government has

20   paid for goods or services that return a tangible benefit to the

21   government.

22              There are generally two ways of determining damages in

23   such cases.   First, if the non-conforming goods or services have

24   an ascertainable market value, then damages are measured

25   according to the "'difference between the market value of the

                                      22
 1   product [the government] received and retained and the market

 2   value that the product would have had if it had been of the

 3   specified quality.'"   United States v. Science Application Int'l

 4   Corp., 626 F.3d 1257, 1279 (D.C. Cir. 2010) (quoting United

 5   States v. Bornstein, 423 U.S. 303, 316 n.13 (1976)) (alterations

 6   omitted).   If the non-conforming goods' or services' market value

 7   is not ascertainable, then the fact-finder determines the amount

 8   of damages by calculating the difference between "the amount the

 9   government actually paid minus the value of the goods or services

10   the government received or used," as judged by the fact-finder.

11   Id.

12               The defendants contend that a "benefit-of-the-bargain"

13   calculation was appropriate in this case, and that the district

14   court erred by awarding the government the full amount of the

15   grant for the years for which the violations were found rather

16   than the difference between the value of the training promised

17   and that actually delivered.   The plaintiff argues, to the

18   contrary, that a different measure of damages is appropriate in

19   cases such as this, where "the defendant fraudulently sought

20   payments for participating in programs designed to benefit third-

21   parties rather than the government itself" and the government

22   received nothing of tangible value from the defendant.    Id.; see

23   also Longhi, 575 F.3d at 473 ("[W]here there is no tangible

24   benefit to the government and the intangible benefit is

25   impossible to calculate, it is appropriate to value damages in

                                      23
 1   the amount the government actually paid to the Defendants.").

 2   This approach rests on the notion that the government receives

 3   nothing of measurable value when the third-party to whom the

 4   benefits of a governmental grant flow uses the grant for

 5   activities other than those for which funding was approved.     In

 6   other words, when a third-party successfully uses a false claim

 7   regarding how a grant will be used in order to obtain the grant,

 8   the government has entirely lost its opportunity to award the

 9   grant money to a recipient who would have used the money as the

10   government intended.

11             The plaintiff and the United States, as amicus curiae,

12   argue that this is such a case:    The government received no

13   tangible benefit from the T32 grant -- students and others may

14   have, but not the government.     The grant represented an attempt

15   to, but did not thereby, promote "child and adult clinical and

16   research neuropsychology with a strong emphasis upon research

17   training with HIV/AIDS."   Grant Application at 2, J.A. 2255.   The

18   plaintiff argues that the government is therefore entitled to

19   damages equal to the full amount of grants awarded to the

20   defendants based on their false statements.

21             We conclude that the measure of damages advocated by

22   the plaintiff and the United States is correct.

23             Although we have not addressed this question, several

24   of our sister circuits have done so in decisions that support the

25   conclusion we now reach.   See Science Application, 626 F.3d at

                                       24
 1   1279 (D.C. Cir.); Longhi, 575 F.3d at 473 (5th Cir.); United

 2   States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008) ("The

 3   government offers a subsidy . . . with conditions.   When the

 4   conditions are not satisfied, nothing is due."); United States v.

 5   Mackby, 339 F.3d 1013, 1018-19 (9th Cir. 2003) ("Had Mackby been

 6   truthful, the government would have known that he was entitled to

 7   nothing . . . .").6

 8             The defendants point out, however, that other courts

 9   have applied the "benefit-of-the-bargain" calculation in cases

10   they assert are similar to this one.   They argue that because

11   "[t]he ultimate beneficiary of all government grants or contracts

12   is the public regardless of who receives the 'direct' benefit,"

13   the flow of benefits to a third-party should not be determinative

14   of the damages measure.   Defs.' Reply Br. at 5.




          6
             District courts within this Circuit have also employed
     this methodology. See United States v. Karron, 750 F. Supp. 2d
     480, 493 (S.D.N.Y. 2011), appeal filed, No. 11-1924 (concluding
     that the defendant was liable for the full amount of a
     government-funded research grant because he "cannot establish
     that the Government received any ascertainable benefit from its
     relationship with CASI. Even assuming that CASI in fact met
     various milestones and provided reports to the Government, such
     actions yielded no tangible benefit to the Government."); United
     States ex rel. Antidiscrimination Ctr. of Metro N.Y., Inc. v.
     Westchester County, No. 06 Civ. 2860, 2009 WL 1108517, at *3,
     2009 U.S. Dist. LEXIS 35041, at *9 (S.D.N.Y. Apr. 24, 2009)
     ("Westchester has identified no tangible asset or structure it
     provided to the United States such that this theory would be
     applicable; it did not have a contract with the government to
     build any sort of facility for the government's use or to provide
     it with goods.").

                                     25
 1                In support of this theory, the defendants cite United

 2   States v. Hibbs, 568 F.2d 347 (3d Cir. 1977).     There, the Third

 3   Circuit applied a benefit-of-the-bargain calculation in an FCA

 4   case involving the defendants' fraudulent statements to the

 5   Federal Housing Administration regarding the condition of various

 6   residential properties.     Relying on these representations, the

 7   agency insured mortgages on several properties, and the agency

 8   was required to pay these mortgages when the purchasers

 9   defaulted.    Id. at 349.

10                The government argued that its damages were the total

11   amount of the mortgage debt it had assumed, insisting that "had

12   [the defendant] not furnished the false certification, it would

13   not have insured the mortgage[s] and therefore would not have

14   been called upon to make any payment."    Id. at 351.

15                The Third Circuit rejected this argument.

16                The government's actual damage was the
17                decrease in worth of the security that was
18                certified as being available, measured by the
19                difference in value between the houses as
20                falsely represented, and as they actually
21                were. Since the government was given
22                security which was less than what it was
23                represented to be, the damages are
24                essentially similar to those sustained when a
25                defective article is purchased in a
26                fraudulent transaction. In those instances,
27                decisional law sets the damages as the
28                difference in cost between that contracted
29                for and that received.
30   Id.




                                       26
 1             Similarly, in Coleman v. Hernandez, 490 F. Supp. 2d 278

 2   (D. Conn. 2007), a case involving the so-called "Housing Choice

 3   Voucher Program" or "Section 8," under which the government

 4   provides housing subsidies to qualifying individuals, the

 5   district court declined to award the plaintiff the full amount

 6   that the government paid to subsidize her rent, even though her

 7   landlord had allegedly made false statements to the government by

 8   overcharging the plaintiff for rent.   Id. at 280-83.   The Coleman

 9   court acknowledged that in other FCA cases, courts had awarded

10   damages equal to the full amount of the government's payment.

11   Id. at 281-82.   But the court decided that in the case before it,

12   the awardable damages were equal to the difference between the

13   market rent, and the amount that the landlord charged the

14   government including the additional, improper payments it had

15   received, i.e., the amount of the overcharge.   Id. at 282.   The

16   government was then made whole, receiving the full benefit of its

17   bargain –- trebled by statute.

18             The defendants also look to Medicaid and Medicare FCA

19   cases for support.   They contend that adopting the plaintiff's

20   theory of damages, all such cases would result in damages equal

21   to the full amount the government paid in reimbursements to

22   physicians because "the direct benefit always goes to patients."

23   Defs.' Reply Br. at 5.

24             This is not, however, the methodology generally

25   employed by courts evaluating FCA claims based on Medicaid or

                                      27
 1   Medicare fraud.   In United States ex. rel. Tyson v. Amerigroup

 2   Illinois, Inc., 488 F. Supp. 2d 719 (N.D. Ill. 2007), the court

 3   awarded damages based on the difference between the amount of

 4   Medicare payments that the defendant should have received, and

 5   the amount that it had actually charged the government.   Id. at

 6   739.   Similarly, in United States ex. rel. Doe v. DeGregorio, 510

 7   F. Supp. 2d 877 (M.D. Fla. 2007), the court also held that

 8   damages were the "the amount of money the government paid out by

 9   reason of the false claims over and above what it would have paid

10   out if the claims had not been false."   Id. at 890.

11               In short, in each of the cases cited by the

12   defendants, the government paid for a contracted service with a

13   tangible benefit -- whether it be medical care, security on

14   mortgages, or subsidized housing -- but paid too much.    The

15   government in these cases got what it bargained for, but it did

16   not get all that it bargained for.   Thus, courts treated the

17   difference between what the government bargained for and what it

18   actually received as the measure of damages.   Here, by contrast,

19   the government bargained for something qualitatively, but not

20   quantifiably, different from what it received.

21              This approach comports with the one we discussed in

22   making a sentencing calculation of loss in United States v.

23   Canova, 412 F.3d 331, 352 (2005) (rejecting argument that

24   abbreviated medical tests performed by the defendant were as

25   clinically sound as full tests required by Medicare so that the

                                     28
 1   government sustained no loss).   There, we explained that it was

 2   not a court's task to second-guess a victim's judgment as to the

 3   necessity of specifications demanded and paid for.    See id.

 4   ("Whether the testing time on a pacemaker, the number of rivets

 5   on an airplane wing, or the coats of paint on a refurbished

 6   building is a matter of necessity or whim, the fact remains that

 7   the victim has been induced to pay for something that it wanted

 8   and was promised but did not get, thereby incurring some measure

 9   of pecuniary 'loss.'")   To be sure, Canova recognized that "a

10   victim's loss in a substitute goods or services case" does not

11   "necessarily equal[] the full contract price paid."   Id. at 353.

12   But this was not because a defendant had the right to an offset

13   for the value of the substituted good or service.    Rather, the

14   proper focus of any loss calculation was on "the 'reasonably

15   foreseeable costs of making substitute transactions and handling

16   or disposing of the product delivered or retrofitting the product

17   so that it can be used for its intended purpose,' plus the

18   'reasonably foreseeable cost of rectifying the actual or

19   potential disruption to [the victim's] operations caused by the

20   product substitution."   Id. (quoting U.S.S.G. § 2f1.1, cmt

21   n.8(c)).   Canova emphasized that a court calculating loss cannot

22   simply "rewrit[e] the parties' contract to excise specifications

23   paid for but not received and, thereby, conclud[e] that the

24   victim sustained no [or a reduced] loss."   Id.



                                      29
 1                Canova's reasoning supports the challenged loss

 2   calculation.    As a result of the fraudulent renewals, the

 3   government was paying for a program that was not at all as

 4   specified.    By contrast to the Medicare cases cited by

 5   defendants, the government did not receive less than it bargained

 6   for; it did not get the "neuropsychology with a strong emphasis

 7   upon research training with HIV/AIDS" program it bargained for at

 8   all.   Further, nothing in the record indicates that it could now

 9   secure such a program at any lesser cost.    We therefore conclude

10   that the appropriate measure of damages in this case is the full

11   amount the government paid based on materially false statements.

12   B. Fraudulent Inducement

13                The defendants acknowledge that courts have applied the

14   plaintiff's theory of damages in cases including Mackby, Rogan,

15   and Longhi, but argue that those cases are distinguishable from

16   this one because the defendants in each of those cases obtained

17   funds through fraudulent inducement -- and that any such theory

18   would fail here because no liability was found with respect to

19   the Grant Application.    "In a fraudulent inducement case, [it is]

20   the false statements [that] allow the defendant to obtain the

21   funding in the first place."    Defs.' Reply Br. at 9.

22                According to the defendants, because a defendant in a

23   fraudulent inducement case would not be eligible for any funding

24   received after the initial false claim, a court in such a case

25   could properly conclude that the defendant is liable for the

                                       30
 1   entire amount that the government paid.   But "[h]ere, the jury

 2   expressly found that the initial Application contained no false

 3   statements, and there was no false certification ever at issue."

 4   Id.   The defendants argue that Mackby, Rogan, and Longhi

 5   therefore do not support the damages theory employed by the

 6   district court.

 7              We see no principled distinction, however, between

 8   fraudulently inducing payment initially, thereby requiring all

 9   payments produced from that initial fraud to be returned to the

10   government (trebled and with certain fees and costs added as

11   provided by statute), and requiring payments based on false

12   statements to be returned to the government when those false

13   statements were made after an initial contractual relationship

14   based on truthful statements had been established.   Although it

15   may be true that under a fraudulent inducement theory,

16   "subsequent claims for payment made under the contract [that]

17   were not literally false, [because] they derived from the

18   original fraudulent misrepresentation, [are also] . . .

19   actionable false claims," Longhi, 575 F.3d at 468 (second

20   brackets in original; internal quotation marks omitted), this

21   proposition simply speaks to the time period for which FCA

22   liability may be found.   It does not suggest that without

23   fraudulent inducement, no subsequent false statements can result

24   in FCA liability.



                                     31
 1             If the government made payment based on a false

 2   statement, then that is enough for liability in an FCA case,

 3   regardless of whether that false statement comes at the beginning

 4   of a contractual relationship or later.   The only difference

 5   would be that liability begins when the false statement is made

 6   and relied upon, rather than at the beginning of the contractual

 7   relationship, as it would be in a fraudulent inducement case.

 8   Here, the jury found that materially false statements had been

 9   made by the defendants in years 3, 4, and 5 of the grant, and the

10   court properly awarded damages based on that finding.

11   C.   Damages as a Matter of Law

12             The defendants argue that the calculation of damages

13   should have been decided as a question of fact by a jury, not as

14   a matter of law by the district court.    Indeed, in FCA cases, the

15   jury ordinarily does determine the amount of damages to be

16   imposed upon the defendant.   See Chandler, 538 U.S. at 132.    We

17   conclude, however, that here, where the question is not the

18   benefit of the bargain between the plaintiff and the defendants,

19   and the amount of each payment for which liability has been

20   assessed is not in dispute, no further finding of fact as to the

21   amount of the damages was necessary.

22             As the government correctly observes in its amicus

23   brief, awarding damages in this manner is not novel.    And often,

24   the amount of damages in such cases has been determined as a

25   matter of law in the course of the court's grant of summary

                                       32
 1   judgment to the plaintiff.   See, e.g., Longhi, 575 F.3d at 461

 2   (affirming summary judgment and damages award); United States v.

 3   TDC Mgmt. Corp., 288 F.3d 421, 428 (D.C. Cir. 2002) (agreeing

 4   that the district court could properly decide the damages award

 5   where the government received no benefit from the transaction).

 6              United States ex rel. Antidiscrimination Center of

 7   Metro New York, Inc. v. Westchester County, No. 06 Civ. 2860,

 8   2009 WL 1108517, 2009 U.S. Dist. LEXIS 35041 (S.D.N.Y. Apr. 24,

 9   2009), is illustrative.   There the federal government paid

10   approximately $52 million as part of a federal grant to

11   Westchester County for the purposes of housing and community

12   development.   Id. at *2-*4, 2009 U.S. Dist. LEXIS 35041, at *5-

13   *11.   The grant required the county to certify that it would

14   "conduct an analysis of impediments . . . to fair housing choice,

15   including those impediments imposed by racial discrimination and

16   segregation, to take appropriate actions to overcome the effects

17   of any identified impediments, and to maintain records reflecting

18   the analysis and actions."   Id. at *1, 2009 U.S. Dist. LEXIS

19   35041, at *2-*3.   The court granted summary judgment for the

20   plaintiff after finding that Westchester County had not conducted

21   the analysis as promised.    The court agreed with the plaintiff's

22   contention that damages should be the full amount the government

23   paid, and rejected the county's argument that the damages

24   question should be submitted to the jury.   There, as here, "the

25   United States did not get what it paid for," and there was no

                                      33
 1   role for the jury because "Westchester's damages cannot be

 2   reduced by reference to the alleged 'benefit' it provided to

 3   HUD."   Id. at *3, 2009 U.S. Dist. LEXIS 35041, at *9.

 4              We conclude that in the case before us, inasmuch as the

 5   damages equal the full amount that the government paid and that

 6   amount is not in dispute, they were properly determined by the

 7   district court as a matter of law.

 8   D.   Sufficiency of the Evidence

 9              Finally, the defendants contend that the plaintiff did

10   not submit sufficient evidence to the jury to establish by a

11   preponderance of the evidence that the government suffered

12   damages equal to the full amount of the T32 grant.   The

13   defendants argue that "to prove that the amount of damages was

14   the entire amount of the grant, a relator would be required to

15   prove that the government received no value -- at all -- through

16   the grant work it funded."     Defs.' Br. at 37.

17              The defendants support this contention by citing

18   benefit-of-the-bargain cases.    The defendants' argument is

19   therefore unavailing.   Unlike a benefit-of-the-bargain case, no

20   specific amount of damages must be proved because, as we have

21   explained at length, damages in this case equal the entire amount

22   of the grant that was lost as a result of the fraud.

23              II.   Materiality

24              The defendants assert that the false statements to the

25   government that are at issue were not material to the

                                        34
 1   transactions in question.   The district court therefore erred,

 2   they say, in denying the defendants' motion for judgment as a

 3   matter of law and for a new trial.7

 4              We conclude that the jury had sufficient evidence from

 5   which to conclude, as it did, that the defendants' false

 6   statements materially influenced NIH's decisions to renew the T32

 7   grant.

 8             A motion for a new trial will ordinarily be granted "so

 9   long as the district court determines that, in its independent

10   judgment, the jury has reached a seriously erroneous result or

11   [its] verdict is a miscarriage of justice."   Nimely v. City of

12   New York, 414 F.3d 381, 392 (2d Cir. 2005) (internal quotation

13   marks omitted).   We review the district court's denial of a

14   motion for a new trial for abuse of discretion.   Id.

15             A motion for judgment as a matter of law may be granted

16   only "[i]f a party has been fully heard on an issue during a jury

17   trial and the court finds that a reasonable jury would not have a

18   legally sufficient evidentiary basis to find for the party on

19   that issue."   Fed. R. Civ. P. 50(a)(1).   "A court evaluating such

20   a motion cannot assess the weight of conflicting evidence, pass

21   on the credibility of witnesses, or substitute its judgment for

22   that of the jury."   Black v. Finantra Capital, Inc., 418 F.3d



          7
             For the reasons referred to in note [5], supra, we assume
     that materiality is required by the pre-2009 version of the FCA,
     although we need not decide that issue on this appeal.

                                     35
 1   203, 209 (2d Cir. 2005) (internal quotation marks omitted).

 2   Because such a judgment is made as a matter of law, we review it

 3   de novo.   We must "consider the evidence in the light most

 4   favorable to the party against whom the motion was made and . . .

 5   give that party the benefit of all reasonable inferences that the

 6   jury might have drawn in his favor from the evidence."      Id. at

 7   208-09 (internal quotation marks omitted).

 8              The district court concluded that the plaintiff had

 9   "presented significant documentary evidence to support a finding

10   of materiality."   Feldman IV, 2010 WL 5094402, at *2, 2010 U.S.

11   Dist. LEXIS 130358, at *5.

12              First, the parties stipulated that in order for a

13   grantee to receive additional funding after the initial grant

14   year, the "grantee must submit a noncompetitive renewal

15   application . . . includ[ing] a progress report which NIH expects

16   will provide information about the trainees['] activities during

17   the previous funding period."   Id.   Second, the renewal

18   instructions for the T32 grant contain a statement explaining

19   that "'Progress Reports provide information to awarding component

20   staff that is essential in the assessment of changes in scope or

21   research objectives . . . from those actually funded.    They are

22   also an important information source for the awarding component

23   staff in preparing annual reports, in planning programs, and in

24   communicating scientific accomplishments to the public and to

25   Congress.'"   Id., 2010 U.S. Dist. LEXIS 130358, at *6 (quoting

                                     36
 1   NIH Grant Continuation Instructions at 7, J.A. 2462).    Third, the

 2   renewal instructions direct grantees to "highlight progress in

 3   implementation and developments or changes that have occurred.

 4   Note any difficulties encountered by the program.    Describe

 5   changes in the program for the next budget period, including

 6   changes in training faculty and significant changes in available

 7   space and/or facilities."    Id. (internal quotation marks and

 8   brackets omitted).    The instructions also ask for "'information

 9   describing which, if any, faculty and/or mentors have left the

10   program.'"    Id. at *3, 2010 U.S. Dist. LEXIS 130358, at *6-*7

11   (quoting T32 Program Announcement PA-06-648 at 22, J.A. 2581

12   (June 16, 2006)).

13                The district court rejected the defendants' argument

14   that the jury was required to accept Dr. Robert Bornstein's

15   unrebutted testimony on the issue of materiality.    Id., 2010 U.S.

16   Dist. LEXIS 130358, at *7.    Bornstein was a member of the IRG

17   that reviewed the defendants' initial grant application.    At

18   trial, he testified as to the factors he considered material to

19   his analysis of a grant application.    He asserted that although

20   he reviewed the application, he did not expect that every faculty

21   member identified in the initial grant application would be

22   involved with the fellowship program.    He also testified that he

23   did not expect the fellowship program to follow the exact

24   curriculum outlined in the initial application.    The defendants



                                       37
 1   argued that this testimony established that not all false

 2   statements in the renewal applications were material.

 3                The district court rejected this argument because

 4   Bornstein never reviewed the renewal applications, nor did he

 5   have an independent recollection of reviewing the initial grant

 6   application.    Id., 2010 U.S. Dist. LEXIS 130358, at *7-*8.     The

 7   court also concluded that "[t]he absence of testimony by a

 8   government official supporting a finding of materiality does not

 9   mean that the jury was required to accept Bornstein's testimony."

10   Id., 2010 U.S. Dist. LEXIS 130358, at *7.      "[T]he jury was well

11   within its bounds to credit NIH's unambiguous guidelines and

12   instructions over Bornstein's conclusory testimony that little in

13   the Grant Application really would have mattered to him had he

14   remembered reviewing it at all."       Id., 2010 U.S. Dist. LEXIS

15   130358, at *8.

16                On appeal, the defendants do not dispute that the

17   renewal applications contained NIH's instructions and guidelines.

18   They contend instead that "none of these statements, taken

19   individually or together, establish what information was material

20   to NIH's funding decisions on renewals," Defs.' Br. at 47, "the

21   Renewal Instructions and the Program Announcement are silent as

22   to what information matters to NIH for purposes of its funding

23   decision."    Id. at 52.   The defendants argue in substance that

24   there is no evidence from which the jury could have decided that



                                       38
 1   the statements it found to be false materially influenced NIH's

 2   decision to renew the T32 grant.8

 3               This argument, however, misapprehends the focus of the

 4   materiality analysis.   In Rogan, the defendant hospital admitted

 5   patients through illegal referrals in violation of the Anti-

 6   Kickback Act, 42 U.S.C. § 1320a-7b.   517 F.3d at 452.   Because of

 7   the violation, the defendant was ineligible to receive Medicare

 8   payments.   The defendant did not deny that it had violated the

 9   Act, but instead argued that its failure to disclose information

10   regarding the illegal referrals was immaterial to the

11   government's decision to approve the hospital's Medicare claims,

12   because materiality could only be established if a government


          8
              The defendants also argue, however, that the district
     court erred in interpreting NIH's guidelines as "unambiguous" --
     in other words, that to the extent the plaintiff did point to
     evidence of materiality, that evidence was insufficient to
     support a jury verdict. Defs. Br. at 52. The defendants note
     that the renewal application's instructions do not specify what
     information needs to be included in a progress report, only that
     the report should include "difficulties" with or "changes" to a
     grant program. Id. at 53. The instructions do not explicitly
     state that grantees must report all changes. Because the NIH
     guidelines are "necessarily ambiguous," defendants argue that the
     court cannot rely upon these guidelines as a "legal standard for
     materiality." Id.
          But the district court never relied on these guidelines, nor
     instructed the jury to rely on these guidelines, as a "standard
     for materiality." The guidelines served instead as evidence that
     the jury was permitted to rely upon in evaluating what was
     material to the government in its monitoring of grants.
     Therefore, we agree with the district court that they provided
     sufficient evidence from which the jury could reach a conclusion
     as to materiality. To the extent that these guidelines are
     ambiguous, it was the jury's function to resolve any disputes
     about their meaning.

                                      39
 1   employee involved in the decision making process testified that

 2   the government would have terminated payments.   Id.

 3             The court rejected this view of materiality, explaining

 4   that a "statement or omission is 'capable of influencing' a

 5   decision even if those who make the decision are negligent and

 6   fail to appreciate the statement's significance."      Id.   As the

 7   court stated, "[t]he question is not remotely whether [the

 8   applicant] was sure to be caught . . . but whether the omission

 9   could have influenced the agency's decision."    Id.

10             In short, even if a program officer does not

11   subjectively consider a statement to be material, it can be found

12   to be material from an objective standpoint because it is

13   "capable of influencing" the program officer.    Id.    As the

14   plaintiff in this case argues, materiality is "determined not by

15   what a program officer at NIH declares material, but rather [is]

16   based on the agency's own rules and regulations."      Pl.'s Br. at

17   48.

18             The Rogan court discussed the purpose of laws

19   prohibiting fraud:

20             Another way to see this is to recognize that
21             laws against fraud protect the gullible and
22             the careless -- perhaps especially the
23             gullible and the careless -- and could not
24             serve that function if proof of materiality
25             depended on establishing that the recipient
26             of the statement would have protected his own
27             interests. The United States is entitled to
28             guard the public fisc against schemes
29             designed to take advantage of overworked,
30             harried, or inattentive disbursing officers;

                                    40
 1             the False Claims Act does this by insisting
 2             that persons who send bills to the Treasury
 3             tell the truth.
 4   517 F.3d at 452 (citation omitted).

 5             We agree with the plaintiff that the test for

 6   materiality is an objective one.    It does not require evidence

 7   that a program officer relied upon the specific falsehoods proven

 8   to have been false in each case in order for them to be material.

 9   The fact-finder must determine only whether the proven falsehoods

10   have a "natural tendency to influence, or be capable of

11   influencing, the payment or receipt of money or property."   31

12   U.S.C. § 3729(b)(4).

13             To decide otherwise –- that materiality must be

14   established in each case based on the testimony of a

15   decisionmaker –- would subvert the remedial purpose of the FCA.

16   The resolution of each case would depend on whether such a

17   decisionmaker could be identified and located, and whether that

18   particular person would have treated the claims as material,

19   regardless of whether they were one of several individuals

20   charged with evaluating the claims at issue.

21             The defendants' contention would also render the

22   language of the statute superfluous.   If no one other than an

23   actual decisionmaker could determine whether a statement had a

24   "natural tendency to influence" payment, the statute could have

25   provided that a statement is "material" if it actually influenced

26   a decision maker who was aware of the statement.

                                    41
 1              Our conclusion finds support in other areas of the law.

 2   In TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976), for

 3   example, the Supreme Court addressed the meaning of "materiality"

 4   in the context of a suit brought under the federal securities

 5   laws.   The Court determined that a fact is "material" if there is

 6   a "substantial likelihood that a reasonable shareholder would

 7   consider it important in deciding how to vote."   Id. at 448.

 8              As an abstract proposition, the most
 9              desirable role for a court in a suit of this
10              sort . . . would perhaps be to determine
11              whether in fact the proposal would have been
12              favored by the shareholders and consummated
13              in the absence of any misstatement or
14              omission. But as we [have] recognized . . .
15              such matters are not subject to determination
16              with certainty. Doubts as to the critical
17              nature of information misstated or omitted
18              will be commonplace. And particularly in
19              view of the prophylactic purpose of the Rule
20              and the fact that the content of the proxy
21              statement is within management's control, it
22              is appropriate that these doubts be resolved
23              in favor of those the statute is designed to
24              protect.
25   Id.

26              The same reasoning applies here.   Like the securities

27   laws at issue in TSC Industries, this objective approach ensures

28   that the FCA serves as a robust prophylactic against fraud by

29   putting the question of materiality to the jury, rather than

30   attempting to trace it back to the state of mind of the

31   decisionmaker.

32              In Bustamante v. First Federal Savings & Loan

33   Association of San Antonio, 619 F.2d 360 (5th Cir. 1980), the

                                     42
 1   plaintiffs alleged that the defendants violated the Truth-in-

 2   Lending Act in a loan transaction.     The court noted that

 3                when a security interest [with an exception
 4                not relevant here] is acquired in real
 5                property which is the residence of the person
 6                to whom credit is extended, the borrower has
 7                a right of rescission within three business
 8                days of either consummation of the
 9                transaction or "the delivery of the
10                disclosures required under this section and
11                all other material disclosures required under
12                this part, whichever is later . . . ."
13   Id. at 362.    Here again, the court applied an objective rather

14   than a subjective materiality standard.    "[T]o apply a subjective

15   standard to the test for materiality would misperceive the

16   remedial purpose of the Act."    Id. at 364.   The court concluded

17   that if materiality could be established by a subjective

18   determination of whether or not particular information would

19   affect a credit shopper's decision to utilize the credit,

20   unsophisticated or uneducated consumers would not be sufficiently

21   protected.    Id.

22                Having concluded that the test of materiality in the

23   case before us is objective -- asking what would have influenced

24   the judgment of a reasonable reviewing official -- rather than

25   subjective -- asking whether it influenced the judgment of a

26   reviewer of a proposal in the case at hand -- we agree with the

27   district court that a reasonable jury could have found the

28   defendants' statements to be material to the renewal decisions in

29   the third, fourth, and fifth years of the grant.    Based on the



                                       43
 1   stipulations regarding criteria relevant to funding and the

 2   testimony at trial, the jury had an ample basis for understanding

 3   the grant process based upon which it could determine whether

 4   statements that were made or omitted concerning changes to

 5   curriculum, personnel and clinical opportunities in the renewal

 6   applications had a "natural tendency" to influence NIH's funding

 7   decisions.    The instructions regarding the grant application and

 8   renewal process provided the jury with a clear understanding of

 9   what information the NIH considers in evaluating progress

10   reports, such as changes or developments to the program.

11                The defendants did not inform NIH that not all faculty

12   members identified in the initial grant were "key personnel" in

13   the program.    The defendants also failed to inform NIH that

14   several of the core courses listed in the proposed curriculum

15   were never implemented, and that fellows were never evaluated by

16   a training committee.    NIH was not informed that the fellows did

17   not have access to research and clinical resources described in

18   the initial grant application.    NIH was also not aware that the

19   fellows had very limited access to HIV positive patients in their

20   research.    In addition, many of the fellows spent much of their

21   time working on projects unrelated to HIV, such as research into

22   aging and epilepsy, which was not reported to the NIH.    We

23   conclude that these facts were more than sufficient to allow a

24   reasonable jury to conclude that had the facts been disclosed

25   they would have had a natural tendency to influence, or would

                                       44
 1   have been capable of influencing, the decision to renew the grant

 2   and pay money to the defendants pursuant to it.

 3               We therefore also conclude that the district court did

 4   not abuse its discretion in denying the motion for a new trial --

 5   the jury's verdict was not "seriously erroneous" or "a

 6   miscarriage of justice."    Nimely, 414 F.3d at 392 (internal

 7   quotation marks omitted).

 8               III.   Exclusion of Evidence
 9                      Demonstrating NIH's Inaction

10               The defendants argue that the district court abused its

11   discretion by excluding evidence of NIH's alleged failure to take

12   remedial action in response to the plaintiff's complaints, and

13   that a new trial is therefore warranted.    We review a district

14   court's decision to exclude evidence for abuse of discretion.

15   Schering Corp. v. Pfizer Inc., 189 F.3d 218, 224 (2d Cir. 1999).

16   "We [also] review a district court's denial of a motion for a new

17   trial for abuse of discretion."    United States v. Brunshtein, 344

18   F.3d 91, 101 (2d Cir. 2003), cert. denied, 543 U.S. 823 (2004).

19               The defendants contend that they should have been

20   permitted to elicit evidence of NIH's relative inaction in

21   response to complaints because it is relevant as to whether or

22   not their statements in the renewal applications were false and

23   material.   Feldman told NIH about the defendants' fraudulent

24   claims and, according to the defendants, the agency saw no

25   validity to the complaints as evidenced by its failure to take


                                       45
 1   action beyond asking Cornell itself to investigate the

 2   complaints.    The defendants argue that they should have been able

 3   to present this evidence to the jury in an effort to persuade it

 4   that the statements had not misled the agency.     If this evidence

 5   was presented, they say, the plaintiff "could then have put on

 6   any rebuttal evidence about why the jury should find the

 7   statements were false and material despite NIH's lack of reaction

 8   when presented with those allegations."     Defs.' Br. at 61.

 9                Federal Rule of Evidence 402, provides, inter alia,

10   that "[i]rrelevant evidence is not admissible."     The district

11   court reasoned that the evidence in question was irrelevant

12   because the NIH's failure to act in response to Feldman's

13   complaints did not speak to the seriousness of those complaints

14   or the likelihood that false claims had been made.     The jury did

15   not have before it the standard that NIH used to determine

16   whether or not action was warranted in response to a funding

17   complaint.    "[N]o discovery was conducted concerning the

18   standards these agencies employ to determine the existence of

19   misconduct and whether those standards are at all similar to the

20   elements of an FCA claim."    Feldman III, 2010 WL 2911606, at *3,

21   2010 U.S. Dist. LEXIS 73633, at *7.      "Specifically, as to [the

22   plaintiff's] deposition testimony on the NIH decision, [he] does

23   not, and indeed cannot, speak to the standards NIH used to judge

24   the merits of his claims."    Id.    Without evidence as to what the

25   standards of the agency were for beginning an investigation, the

                                         46
1   jury could not determine whether the complaints made by Feldman

2   should have instigated one.9   Id., 2010 U.S. Dist. LEXIS 73633,

3   at *7-*8.

4               The defendants further argue that to the extent that

5   the district court excluded evidence of NIH's inaction pursuant

6   to Rule 403, it did so in error.      While ultimately we would be

7   inclined to agree with the district court, we need go no further

8   in our analysis because the evidence was properly excluded under




         9
              The defendants point to United States v. Southland
    Management Corp., 326 F.3d 669 (5th Cir. 2003) (en banc), where
    the court considered the relevance of the course of conduct
    between a landlord receiving Section 8 funds and HUD. The court
    concluded that the communication between HUD and the landlord
    demonstrated that "HUD was willing to work with the Owners" on
    remedying maintenance problems, and that "HUD seemed to recognize
    that the property's noncompliance was at least partially
    explained by a lack of funds and nearby criminal activity." Id.
    at 677. Based in part on this pattern of honest and open
    communication, the court concluded that there could be no FCA
    liability. Unlike in Southland Management, there is no
    indication here that the defendants communicated compliance
    issues to the government or sought its help in addressing them.
    Where the government acts in response to potential false claims,
    its activity may reveal something about its understanding as to
    whether those claims were deliberately false or the result of
    extrinsic factors, as in Southland Management. But where, as
    here, there is no evidence of government action, nothing relevant
    can be ascertained without knowing for which of many possible
    reasons it did not act.
              The defendants also cite United States ex rel.
    Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148
    (2d Cir. 1993), in which we stated that "government knowledge may
    be relevant to a defendant's liability." Id. at 1157. Indeed it
    "may be," but is not here where the significance of the knowledge
    and the responsibilities of the recipients have not been
    established.

                                     47
1   Rule 402 in any event.   This conclusion was not an abuse of

2   discretion.

3                               CONCLUSION

4             For the foregoing reasons, we affirm the judgment of

5   the district court.




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