Dec 302013

Fourth Circuit Avoids Excessive Fines Clause By Allowing Relator To Select An Alternative FCA Penalty

Jaime L.M. Jones
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As we previously reported, a federal court in Virginia last year held that the minimum statutory civil FCA penalties were unconstitutionally excessive in light of the facts before it, and refused to impose any penalties. U.S. ex rel. Bunk v. Birkard Globistics GMBH (E.D. Va. Feb. 14, 2012). On December 19, the Fourth Circuit reversed and remanded the district court’s decision to enter no penalties with an instruction to award the plaintiff $24 million – the amount relator Bunk previously had expressed a willingness to accept. United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., No. 12-1369, slip op. 30 (4th Cir. Dec. 19, 2013).

At trial, the jury found defendants liable under the FCA for conspiring with subcontractors to fix prices in advance of a bid for a government contract and submitting a false Certificate of Independent Pricing. The Relator did not seek damages, but only penalties based on the parties’ stipulation that the defendant had filed 9,136 invoices under the fraudulently obtained contract. While Relator proposed a $24 million civil penalty, the court calculated the mandatory minimum penalty as no less than $50,248,000 ($5,500 x 9,136). The court determined that this penalty violated the Excessive Fines Clause of the Eighth Amendment in light of the relator’s failure to establish that the defendant’s fraud caused any economic harm to the government. As such, the district court concluded “that [it] must simply refuse to enforce the mandated penalty . . . and not substitute its own fashioned penalty.”

The Fourth Circuit reversed, rejecting the district court’s determination that it was unable to craft an alternative penalty. The court held that the government – or a relator standing in the government’s shoes – has “unbounded” discretion to pursue a lesser judgment than that to which it may be entitled and, by exercising that discretion, may avoid the application of the Excessive Fines Clause. In reaching this conclusion, the court noted that the dilemma under the Excessive Fines Clause was the result of the court’s own precedent construing the FCA penalty provisions broadly to impose penalties on each false or fraudulent claim submitted, rather than narrowly to attach only to an underlying fraud. By concluding that a relator may simply select an alternative penalty without regard to the FCA’s requirements, the Fourth Circuit avoided the Constitutional dilemma created by the law’s draconian penalty provisions and the court’s precedent. The court then concluded – without analysis – that the alternative penalty proposed by the relator was not unconstitutionally excessive in light of the “gravity” of defendant’s misconduct and the “necessary and appropriate deterrent effect” served by the FCA’s penalties provision.

Jaime L.M. Jones

Chicago

jaimejones@sidley.com

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