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$50 Million FCA Civil Penalty Was Unconsitutional

The District Court for the Eastern District of Virginia declined to enforce the False Claim Act's mandatory civil penalty because it constituted an excessive fine in violation of the Eighth Amendment and the FCA did not give the court discretion to award a lesser penalty that would be within constitutional limits. The relators alleged the contractor filed a false certificate of independent price determination in connection with its successful bid on a contract for packing and moving services, when in fact the contractor and other potential bidders had entered into a subcontract price-fixing agreement. Following a jury verdict against the contractor, the district court determined each of the contractor's 9,136 invoices constituted a false claim as a matter of law (55 CCF 79,677). As adjusted, the civil penalty under 31 USC 3729 was $5,500 to $11,000. If assessed for each false claim, the minimum penalty amounted to approximately $50 million.

Grossly Disproportional

In determining whether the penalty was excessive, the court found there was insufficient evidence the government sustained any economic harm as a result of the subcontract pricing conspiracy. Rather, there was "strong evidence" the contract provided pricing more favorable to the government than in prior years. In addition, the number of invoices did not reflect the contractor's level of culpability, and its conduct with respect to the contract was unrelated to its unlawful conduct with respect to another program. Considering the contractor realized a presumed profit of approximately $150,000 on the government's payment of approximately $3.3 million for packing services, the minimum penalty was "grossly disproportional to the harm caused" by the contractor. However, the FCA neither stated that a civil penalty shall be assessed for each false claim nor permitted the court to impose up to a certain amount in its discretion. Exercising discretion to fashion a constitutional penalty would therefore be "an unauthorized exercise of statutory revision," and the court had "no option other than to refuse to enforce the civil penalty provision of the FCA, as applied to the facts of this case." (U.S. ex rel. Bunk v. Birkart Globistics GmbH & Co., et al., DC ED Va, 56 CCF 79,754)




(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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