Imposition of Substantial Penalties Under The FCA Where No Damages Are Found Violates Eighth Amendment
Last week, the U.S. District Court for the Eastern District of Virginia in U.S. ex rel. Bunk v. Birkart Globistics GmbH & Co., et al. (a qui tam case in which the government did not intervene) declined to impose statutory penalties on the jury’s finding of 9,136 false claims (invoices submitted by defendants under a fraudulently-induced contract) that would have amounted to between $50.2 million and $100.4 million. Judge Anthony J. Trenga held that, in this case, where the relator failed to establish that the government suffered any economic harm or damages, imposing penalties of that magnitude would violate the Eighth Amendment’s Excessive Fines Clause. It also held that it lacked discretion under the FCA to unilaterally reduce the penalties or fashion some other civil penalty that would be within constitutional limits and was therefore compelled to impose no penalties notwithstanding the finding of FCA liability. See United States ex rel. Bunk v. Birkart Globistics GmbH & Co., et al., No. 1:02-cv-1168 (E.D. Va. Feb. 14, 2012).
The legal basis on which a court may fashion its own civil penalty when an otherwise binding, nondiscretionary statutory penalty or fine is deemed unconstitutional, is an issue that has not been specifically dealt with by the Supreme Court or the Fourth Circuit. Even in cases where courts have held that the FCA civil penalty violates the Eighth Amendment when applied to the facts and fashioned their own constitutional penalty, there has been little discussion concerning the legal basis on which a court may do so.
Given this lack of precedent, Judge Trenga went on to provide three alternative rulings in the event that the Fourth Circuit determines that the court does have authority to impose a civil penalty other than the mandatory, but constitutionally excessive, civil penalty prescribed by statute. He considered that an alternative reasonable interpretation of the FCA would be that a civil penalty should be applied for each factually false statement, as opposed to each claim paid as a result of that false statement (despite also recognizing that Fourth Circuit precedent is to do the latter). The court concluded that one civil penalty could be imposed (since there was only one false statement), between the statutory range of $5,500 and $11,000, and that under such a construction, it would have assessed an award of $11,000.
Next, the court considered whether a multiplier of the financial gain to defendants of $150,000 in profits could serve as a touchstone for determination of proportionality that would establish a constitutional limit. Using that figure, “and the multiples identified by the Supreme Court as representing the outer limits of propriety under the Due Process clause for assessing punitive damages,” (without citing any cases) the court concluded that a total penalty of $1.5 million would reflect, based on the facts of the case, the outer limit of a constitutionally permissible fine under the Eighth Amendment. In doing so, the court rejected the Plaintiff’s and the government’s position that the outer limit of a constitutionally permissible fine would have been $24 million, noting that “the $24 million civil penalty does not result from any principled application of the FCA, as it is not a multiple of 9,136 and any number within the statutory range of $5,500 to $11,000. Rather, the proposed penalty appears to be based on nothing more than what the Plaintiffs think is an appropriate number under the circumstances of the case.”
Finally, the court considered what the civil penalty would be if it were found to be appropriate for the court to impose a civil penalty based on the facts and circumstances of the case (including the defendants’ conduct, the gain obtained, the need to deter others and sanction the defendants, and the public interest in protecting the integrity of the public procurement process). Under that measure, the court would have awarded $500,000, which it described as corresponding to three times the defendants’ presumed profit ($150,000) on the services provided under the line item in question and also the defendants’ approximate profit on the entire contract over three years (without stating that amount).