,
Jennifer M. O'Connor 
,
David W. Ogden ,
Carl J. Nichols ,
Todd R. Steggerda and
Matthew D. Benedetto
In the latest turn in the developing caselaw on application of the Excessive Fines Clause to False Claims Act remedies, a judge on the U.S. District Court for the Eastern District of Virginia handed down a decision last week concluding that he could not impose any civil penalty in a False Claims Act ("FCA") case despite a jury finding that the defendant was liable for submitting 9,136 false claims. See United States ex rel. Bunk v. Birkart Globistics GmbH & Co., Nos. 1:02cv1168 and 1:07cv1198 (AJT/TRJ), 2012 WL 488256 (E.D. Va. Feb. 14, 2012). The qui tam relators had not attempted to prove actual damages to the Government at trial, and the court concluded that the Government had in fact suffered no economic harm. But the FCA would have required a civil penalty of at least $50 million. The court held that this would be unconstitutionally excessive under the Eighth Amendment—as would an alternative $24 million fine proposed by the relators and the Government. The court went on to determine that, in the face of the FCA's specification of a particular range of penalty amounts, it lacked discretion or authority to impose a lesser penalty that would fall within constitutional limits. Accordingly the court concluded that it could impose no penalty at all. Thus, the defendant was found liable but was not required to pay any damages or civil penalties.
The Decision
The relators alleged, in part, that the defendants, Gosselin
Worldwide Moving N.V., its successor, and a Gosselin official
(collectively "Gosselin"), had violated the FCA by filing
a false Certificate of Independent Pricing ("CIPD") when
Gosselin bid for a contract to transport military household goods
between U.S. military installations in different countries. The
relators contended the CIPD was false because Gosselin and other
potential bidders had entered into a subcontract price-fixing
agreement prior to bidding on the contract. Id. at *3.
Although the relators initially alleged damages, they did not seek
to prove damages at trial. Id. The parties stipulated that
Gosselin had filed 9,136 invoices under the contract. The jury
found Gosselin liable for the alleged bid-rigging. Id.
The FCA provides that a violator "is liable to the
United States Government for a civil penalty of not less than"
$5,500 and not more than $11,000, as adjusted for inflation. 31
U.S.C. § 3729. In the court's view, precedent required
treating each invoice as a separate false claim and imposing a
civil penalty in the statutory range for each false claim.
Id. at *4. Because the defendant had submitted 9,136
invoices, the court found that it was obligated to assess a total
civil penalty of no less than $50,248,000. Id.
The court then considered whether a fine in that amount would
violate the Eighth Amendment's Excessive Fines Clause. In order
to determine whether a penalty within this range ran afoul of the
Eighth Amendment, the court looked to whether the penalty was
"grossly disproportional" to any harm caused by the
defendants. Id. The court concluded that the Government
did not suffer any economic harm. Id. at *7. Indeed, the
court found that the pricing afforded the Government under the
affected contract had been more favorable than the pricing on
similar contracts in prior years. Id. As to non-economic
harm, the court found that the plaintiffs had offered no evidence
that the services provided were deficient in any way. Id.
at *8. The court also concluded that the number of invoices alone
was not reflective of the defendants' culpability. Id.
at *9. In light of these considerations, the court concluded that
the $50 million civil penalty was grossly disproportionate to any
harm caused by the defendants. In post-trial briefing, the relators
and the United States argued that the penalty could be reduced to
$24 million, an amount they characterized as "unquestionably
within the constitutional limit of the Excessive Fines
Clause," by counting only a portion of the invoices.
Id. at *14. The court rejected the motion, both because
the $24 million figure, in its view, would "not result from
any principled application of the FCA" and because $24 million
would still be constitutionally excessive. Id.
Finally, the court examined whether it could impose an even
smaller, constitutionally permissible penalty, but it concluded
that it lacked the discretion to do so. In the court's view,
the FCA "does not grant the court authority to impose a total
penalty below the amount derived" from the statute itself.
Id. at *12. Imposing a lesser penalty, the court
suggested, would amount to "rewrit[ing] the FCA."
Id.
Context and Implications
The Bunk court's decision is significant for
several reasons. First, it is the latest contribution to
the growing debate on whether, and if so how, the Excessive Fines
Clause applies to damages and civil penalties under the FCA. The
Eighth and Ninth Circuits have held that treble damages and civil
penalties judgments under the FCA are punitive enough in nature to
be subject to the Excessive Fines Clause. See Hays v.
Hoffman, 325 F.3d 982, 992 (8th Cir. 2003); United States
v. Mackby, 261 F.3d 821, 829-31 (9th Cir. 2001); see also
Daewoo Engineering & Construction Co. v. United States,
557 F.3d 1332, 1340 (Fed. Cir. 2009) (assessing penalty imposed on
fraud counterclaims under the Contract Disputes Act under Excessive
Fines Clause). The Seventh Circuit, in very considered dictum, has
questioned that view, see United States v. Rogan, 517 F.3d
449, 454 (7th Cir. 2008), and some district courts have agreed with
the Seventh Circuit, see, e.g., United States v. Karon,
750 F. Supp.2d 480, 493 n.12 (S.D.N.Y. 2011); United States v.
Inc. Vill. of Island Park, No. 90 Civ. 992(ILG), 2008 WL
4790724, at *6 (E.D.N.Y. Nov. 3, 2008).
Second, the Bunk decision is noteworthy in its
rejection, at least on the facts before it, of the notion that an
otherwise constitutionally excessive fine may be brought within
constitutional bounds by reducing the number of false claims
pursuant to the plaintiffs' effective voluntary dismissal of a
portion of their case. Some other district courts have adopted just
this strategy. See, e.g., United States v. Mackby, 221 F.
Supp.2d 1106, 1110-11 (N.D. Cal. 2002), aff'd, 339
F.3d at 1015, 1017-18 (imposing penalty based on 111 of 8499 false
claims).
Third, the decision is significant for its rejection of
the notion that district courts possess authority to bring
otherwise excessive FCA penalties within constitutional limits even
without the plaintiffs' voluntary reduction of the universe of
false claims. At least some other district courts have taken the
opposite view. See, e.g., United States v. Advance Tool
Co., 902 F. Supp. 1011, 1018-1019 (W.D. Mo. 1995) (basing
penalty on 73 instead of 686 false claims, the number of types of
tools supplied rather than the number of invoices); United
States ex rel. Smith v. Gilbert Realty, 840 F. Supp. 71, 74-75
(E.D. Mich. 1993) (basing penalty on seven false certifications
rather than on 51 rent checks submitted).
Excessive Fines Clause challenges to FCA judgments typically arise
in cases involving large numbers of false claims each of which
involves small actual damages, for example, cases involving
allegations based on technical regulatory or contractual violations
where little or no harm actually occurred but where there are many
claims. In such situations, relators or the Government may use the
prospect of potentially massive civil penalties to exact large
settlements. The Bunk decision demonstrates that some
courts may undercut this strategy by resisting imposition of very
large penalties where they are grossly disproportionate to actual
harm.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
