Criminal Defense Blog

Fourth Circuit Decision Addresses Constitutionality of Per-Claim Penalty under Federal False Claims Act

The decision delivered just before Christmas by the United States Court of Appeals for the Fourth Circuit in US ex rel. Kurt Bunk, et al., v. Gosselin Worldwide Moving, N.V., et al. is of value and of interest to all healthcare providers subject to the reach of the Federal False Claims Act (hereafter “FCA”). Although not dealing with the healthcare market, the decision serves as another illustration of the potential scope of per-claim civil penalties under the FCA and the vitality of such penalties when  analyzed under the United States Constitution’s bar on excessive fines via the Eighth Amendment.

At issue in the  Bunk case was a Department of Defense program to ship the personal goods and effects of U.S. soldiers back and forth from their homes in United States to various U.S. military installations in Europe. To effect this service, the Department of Defense solicited competitive bids from shipping corporations on various routes, termed shipping “channels”, between the continents and within Europe.

Several shipping corporations, which comprised the vast majority of the market for these services, began meeting in order to agree on an inflated minimum bid level for the services in the various channels. When the contracts were then awarded to a company, the work would be subcontracted to their supposed competitors in pre-arranged amounts. When other companies attempted to undercut the agreed-upon rate in later bidding cycles, the colluding companies were able to use their influence to convince the lower bids to be withdrawn and to reorganize the second round of bidding.

Relators with knowledge of the situation, including Kurt Bunk and Ray Ammons, commenced separate civil actions under the FCA. These civil lawsuits were stayed while the United States Department of Justice pursued a criminal prosecution, which resulted in convictions of some of the corporations, including defendant Gosselin, which paid $865,000 in restitution for its role in one of the shipping channels. When the stay of the civil suits was lifted and the cases consolidated, Gosselin was the only defendant that remained in the case, as the other cases were either settled or were dismissed for various reasons.

The United States intervened in the Ammons action, but although the government declined to intervene in Mr. Bunk’s case, Mr. Bunk and his attorneys continued to prosecute his claims. Mr. Bunk’s complaint hinged on the theory that Gosselin’s conduct triggered FCA liability because, after it was awarded the shipping contracts, it filed a “Certificate of Independent Price Determination” in which it affirmed that it had not engaged in discussions of pricing are soliciting strategy with other potential suppliers. Under this theory, Mr. Bunk argued that single allegedly false certificate covered 9,136 subsequent claims for payment for Gosselin and therefore represented 9,136 separate false claims under the FCA.

In the Ammons action, the government pursued both remedies under the false claims act–treble damages and per-claim civil penalties ($5,500 per claim minimum, $11,000 per claim maximum). Relator Bunk chose to forgo proof of damages to the government, suing only for the per-claim civil penalties. As a result of the criminal convictions, the government was granted partial summary judgment on its FCA claims pertaining to a portion of the particular channels at issue, although the remaining FCA claims with regard to other channels proceeded to trial.

At the close of the trial, the jury returned favorable verdicts for both the government and Mr. Bunk, including a finding that Mr. Bunk had proven FCA liability on all 9,136 claims submitted by Gosselin. Although the verdicts for both were modified by the district court, the portion of the decision dealing with the Bunk action, and the subsequent decision on appeal, warrants special focus.

After the verdict was reached, Mr. Bunk, realizing the statutory minimum per claim penalty of $5,500 would result in a total penalty in excess of $50 million for Gosselin and potentially trigger an Eighth Amendment review, requested that the court only enter judgment for $24 million on the 9,136 claims. However, the district court found that a per-claim civil penalty applied to Gosselin would violate the Eighth Amendment. The Court ruled that since imposition of no more than the statutory minimum of $5,500 per claim to the 9,136 claims would have resulted in a total civil penalty in excess of $50 million, it would result was an excessive award relative to the $3.3 million that the government paid Gosselin with respect to those claims, the $865,000 Gosselin had already paid in restitution in the criminal case, and the roughly $14 million the settling defendants had already paid. Furthermore, the district court even found that any penalty in excess of $1.5 million would be excessive and constitutionally impermissible. As a result, the district court concluded that, to the extent the FCA permitted it to assess an amount of penalties below the $50 million required for the 9,136 claims at issue, it would only award $500,000 in penalties to Mr. Bunk.

Both Mr. Bunk and Gosselin appealed and the Fourth Circuit returned a decision fully favorable to the relator. First, Gosselin argued that Mr. Bunk lacked standing to sue by virtue of his litigation decision to forgo proof of actual damages to the government as a result of Gosselin’s false certification and sue only for the per-claim civil penalty allowed by the FCA. Gosselin argued that Mr. Bunk was required to demonstrate damage to the government, and by failing to do so, Mr. Bunk relinquished any standing to pursue FCA liability. Although two other circuits previously rejected such an argument, this was apparently a question of first impression in the Fourth Circuit.

The Fourth Circuit summarily rejected this argument, citing the Supreme Court’s 2000 decision in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 US 765, 771. Ultimately, the Fourth Circuit reasoned that the judgment below confirmed that the United States suffered an “injury in fact,” which automatically granted standing to qualifying relators under the FCA.

The Fourth Circuit then reviewed the district court’s ruling that (1) the application of the minimum per claim civil penalty to the 9,136 false claims exceeded the amount allowed under the Eighth Amendment; and (2) that the district court lacked authorization to enter judgment on a lesser amount, notwithstanding Mr. Bunk’s proposal of $24 million. In a discussion that acknowledged the tension between the FCA’s per-claim penalties and the Eighth Amendment, the Fourth Circuit reversed the district court and ordered it to enter judgment for Mr. Bunk in the amount of $24 million he proposed in his post-trial papers.

With regard to the district court’s concern that it could not enter judgment in an amount less than the minimum required by adding $5,500 for each of the 9,136 false claims, the Fourth Circuit found that the FCA allowed “virtually unbounded” discretion for settlements in amounts below the statutory minimum for aggregated false claims. Furthermore, the Fourth Circuit found a per-claim civil penalty to be a necessary deterrent and that the district court’s essential award of “nothing at all because the claims were so voluminous provides perverse incentive for dishonest contractors to generate as many false claims as possible, siphoning never more resources from the government.”

Turning towards the question of whether the $24 million offered by Mr. Bunk was an excessive penalty under the Eighth Amendment, the Fourth Circuit found that concept of harm to the government “need not be confined strictly to the economic realm,” and the deterrent effect provided by a per-claim civil penalty was important because “the prevalence of defense contractor scams shakes the public faith in the government’s competency and may encourage others similarly situated to act in a like fashion.” The Fourth Circuit cited this paragraph from its decision in Toeplemen v. United States as an apt justification of the per claim penalty:

“[N]o proof is required to convince one that to the Government a false claim, successful or not, is always costly. Just as surely, against this loss the Government may protect itself, though the damage be not explicitly or nicely ascertainable. The [FCA] seeks to reimburse the Government for just such losses. For a single false claim[, the civil penalty] would not seem exorbitant. Furthermore, even when multiplied by a plurality of impostures, it still would not appear unreasonable when balanced against the expense of the constant Treasury vigil they necessitate.” 263. F.2d 697 (4th Cir. 1959).

Although both sides may appeal this decision within 60 days, the Fourth Circuit’s decision, as it stands, serves to reinforce the power of the per-claim penalty for all parties who receive payments from the United States government, including healthcare providers. These penalties, which can be applied to multiple claims through a single false statement, can exponentially outstrip any amount of actual damage demonstrated by the government, even after those damages are trebled under the FCA, or a party makes full restitution in a criminal proceeding.


Back to Top