Header graphic for print
Government Contracts Advisor Industry Insights & Analysis

Virginia District Court Holds Mandatory FCA Penalty Unconstitutional

Posted in False Claims Act

On February 14, 2012 a Virginia District Court found that the award of a mandatory civil penalty of at least $50,248,000 under the False Claims Act (“FCA”) was a constitutionally excessive fine in violation of the Eighth Amendment. United States ex rel. Bunk v. Birkart Globistics GMBH & Co., E.D. VA Nos. 1:02cv1168, 1:07cv1198, Feb. 14, 2012. The decision followed a jury award in favor of the United States and the Plaintiffs’ post-trial motion for an award of civil penalties. The case involved a Department of Defense (DoD) contract for the transportation of military household goods between various military installations in Europe. At a government information session, three companies, including Gosselin, discussed and agreed upon the prices to be charged and the territories to be serviced as subcontractors to the winning bidder, regardless of who was awarded the contract. The jury found this conduct resulted in a violation of the FCA and the district court upheld the verdict.

The FCA provides for a civil penalties of not less than $5,500 and not more than $11,000 for each false claim, and defines each individual claim for payment made under a fraudulently induced contract as a separate false claim. The parties stipulated that the Defendants submitted 9,136 invoices under the contract, and the district court found, as a matter of law, that each of those invoices constituted a false claim for the purposes of assessing a civil penalty. Thus, the court was statutorily obligated to assess between $50,248,000 and $100,496,000 in penalties

After a consideration of the economic and non-economic harm suffered by the government as a result of the false claims, the district court found that the minimum mandatory civil penalty of $50,248,000 was grossly disproportional to the harm caused by Gosselin under the contract, and violated the Eighth Amendment. The district court therefore refused to impose any civil penalty finding that it did not have the discretion to fashion a penalty other than the one required by the FCA.

This decision, if upheld upon any appeal, could minimize the impact of the FCA civil penalty provision on contractors, especially in cases where the amount of penalties is “grossly disproportionate to the gravity of a defendant’s offense.” The case can be accessed at http://www.pubKLaw.com/decisions.html#othercourts.