Sunday, February 19, 2012

Court Refuses to Impose FCA Civil Penalty in False Certification Case On Grounds That $50.2 Million Penalty Violates Excessive Fines Clause

The Blog of Legal Times recently featured an interesting case where a District Court Judge refused after the trial of a False Claims Act ("FCA") case to impose the minimum $50.2 million Civil False Claims Act penalty on the grounds that the penalty was unconstitutionally excessive in violation of the 8th Amendment:  United States ex rel Kurt Bunk & Daniel Heuser v. Birkart Globistics GmbH & Co et al., Case No. 1:02 cv 1168 (AJT/TRJ)(E. D. VA.  2/14/12).  As reported in The BLT, Judge Trenga refused to impose the statutorily mandated fine based on the number of invoices submitted to the government on the grounds that the fine was "grossly disproportional" to harm --more precisely, the lack of harm-- caused by the defendant, Gosselin Worldwide Moving N.V. 

The FCA claim against Gosselin was based on a false certification theory.  Gosselin had submitted a bid to the Department of Defense Contracting to pack and move military household goods owned by service personnel and their families between the United States and various countries in Europe. In submitting their bid, Gosselin met with two of its competitors about one subcontracting portion of their overall bid.  They agreed "as to the prices each would charge and the territories they would service as subcontractors to the winning bidder, regardless of who actually was awarded" the contract.  Gosselin was the winning bidder, and in performing its contract with the government it had to submit a "certificate of independent pricing" wherein it falsely affirmed that "the prices in the offer have been arrived at independently, without . . . agreement with any other offferor or competitor."  Gosselin lost at trial, and the relators sought a civil penalty of an amount between $5,500 and $11,000 based on the 9,136 invoices that Gosselin had submitted for payment.  Calculated, the minimum civil penalty provided by the FCA was $50,248,000.

The Court found that the statutory penalty violated the Excessive Fines Clause on the grounds that it was grossly disproportionate to the offense.  The Court identified several factors that demonstrated the lack of proportion between the harm and the offense, including: (1) there was no evidence of any cognizable financial harm to the United States as a result of the bid and neither the Relator nor the government sought to prove any damages at trial; (2) there was no evidence that the fixed price as to the subcontractor resulted in higher prices, and in fact there was evidence that the contract price was less than Gosselin had agreed to in previous years; and  (3) there was no evidence that the government could have obtained a lower bid or obtained the "subcontractor" services at issue at a lower cost absent the subcontractor pricing conspiracy.  The Court pointed out further that there was no evidence that Gosselin's services were deficient in any way, and noting that Gosselin's "profit" for the disputed subcontracting portion of the overall contract was $150,000, the Court observed:  "there is nothing about this level of gain that would justify the minimum mandated civil penalty of over $50 million."

In the end, the Court concluded that having founded the statutorily mandated penalty constitutionally excessive, it could "not substitute its own fashioned penalty due to the language and structure of the FCA itself."  The Court explained suggested an alternative construction of the FCA statute that would avoid the application of an unconstitutional fine: based on the plain language of the statute, an alternative reasonable interpretation is that a civil penalty should be applied for each act that violated the prohibition, ie., "each factually false statement, not each claim paid as a result of that false statement." Gosselin, the Court noted, had only made one false certification, and thus should be subject to a fine of between $5,500 and $11,000.

The incredible fines faced by Gosselin are calculated based on the number of invoices it submitted to the government for payment.  Health care providers facing False Claim Act litigation face this same dilemma: the false claims alleged against them are most often based on the number of bills submitted.  They too can face incredible penalties as there can be thousands of individual bills, and as a result, it is very rare to see health care providers contest liability at trial.  There is just too much exposure if they should lose.

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