Fourth Circuit Finds $24 Million False Claims Act Penalty Not Excessive Even Where No Damages Proven At Trial

In a recent False Claims Act ("FCA") opinion that has already been heavily criticized, the Fourth Circuit held that a $24 million penalty was not "excessive" under the Constitution even where damages were not proven at trial and where the government had paid only a total of $3.3 million for the services in question. United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., No. 12-1369 (4th Cir. Dec. 18, 2013).

The relator in the case alleged that the defendant, a Belgian shipping company, engaged in a "bid rigging scheme" designed to inflate the rates charged for the movement of U.S. military household goods between Europe and the U.S. and within Europe. Although the government intervened as to part of the case, it did not intervene with respect to the claims at issue in the Fourth Circuit's eventual decision. Rather than seeking both a fixed civil penalty for each false claim and three times the amount of actual damages, the relator chose to forgo proof of damages, and sued only for civil penalties. Unlike the District Court, which found that the constitutional threshold could not exceed $1.5 million in civil penalties, the Fourth Circuit relied on deterrence and public policy rationales to justify the $24 million award.

District Court Decision

At trial, the jury found that the defendant was liable for submitting 9,136 false invoices under its Department of Defense contract but the District Court concluded there was insufficient evidence to find that the government suffered any economic harm. Because the FCA imposes a civil penalty of not less than $5,500 and not more than $11,000 per violation as currently adjusted for inflation, a per-claim computation using the minimum penalty of $5,500 would have resulted in a $50,248,000 civil penalty. Given that no damages were proven at trial and the government paid only a total of $3.3 million for the services in question, the court held that this amount would be excessive under the Excessive Fines Clause of the Eighth Amendment.

The court also found that it lacked discretion to impose a smaller, constitutionally permissible penalty. Thus, it rejected the relator's proposal, in consultation with the government, to accept a lower amount, $24 million, because, in the court's view, it was obligated to treat each invoice as a separate false claim and impose civil penalties for each false invoice. According to the court, the FCA "does not grant the court authority to impose a total penalty below...