False Claims Act Trial 'Win' But No Recovery: Excessive Fines Clause Bars Penalties In 'Zero' Damages Case

Author:Mr Craig Margolis, Tirzah S. Lollar and Randall Warden
Profession:Vinson & Elkins LLP
 
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In a landmark decision last week, the United States District Court for the Eastern District of Virginia declined to impose per-claim statutory penalties of more than $50 million in a False Claims Act (FCA) case with more than 9,000 "false" claims but no damages. The court held that imposing such a disproportionate penalty would violate the Eighth Amendment's Excessive Fines Clause, and that it lacked discretion unilaterally to reduce the penalty under the statute. As a result, after years of pre-trial procedural wrangling and following a jury verdict, the relators (and the United States) recovered neither damages nor penalties. See United States ex rel. Bunk v. Birkart Globistics GmbH & Co., et al., No. 1:02-cv-1168 (E.D. Va. Feb. 14, 2012). This case demonstrates the pitfalls for relators and for the government itself in actively pursuing FCA claims in the absence of provable damages. This case involved a Department of Defense contract for the transportation of military household goods between U.S. military installations in Europe. The allegation was that bidders colluded on pricing after meeting with procurement personnel in 2001. Although a FCA qui tam complaint was filed under seal in 2002, the government did not intervene until 2008 (and then only partially) and the relators went to trial on the remaining claims in 2011. At trial, the jury found that the winning contractor falsely certified in its bid that there was no collusive activity, and that, as a result, each of its 9,100-plus invoices was deemed "false." The question for the court was whether to impose any penalties under the FCA in the absence of evidence that the collusion resulted in increased prices or any other actual loss.

  1. Penalty of $50 Million Is Excessive Absent Proof of Actual Damages.

    FCA penalties of between $5,500 and $11,000 must be imposed per false claim. 31 U.S.C. § 3729; 28 U.S.C. § 2461. With over 9,100 false invoices submitted, the court calculated the statutory FCA civil penalties to be not less than $50.2 million and not more than $100.4 million. The defendants argued that such a civil penalty would violate the Eighth Amendment, which provides: "Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted." First, concluding that FCA penalties are "essentially punitive in nature," Vermont Agency of Natural v. United States ex rel. Stevens, 529 U.S. 765, 784 (2000), the court analyzed whether the...

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