“Entirely Comfortable” With a “Monster”: A Striking Decision From an Unlikely Source About Excessive Fines Under the FCA

As we have discussed before, whistleblower and retaliation decisions—including from the Supreme Court of the United States—have created an increasingly whistleblower-friendly body of law that unifies courts across the ideological spectrum. Bunk v. Gosselin World Wide Moving, a recent decision from the Fourth Circuit Court of Appeals in Richmond, long considered an employer-and business-friendly court, is a striking addition to that body of law. Bunk interprets the civil penalties provision of the False Claims Act (FCA) broadly to allow exceptionally large fines.

Under the FCA, individual plaintiffs, called “relators,” or the government, may recover three times the amount of actual damages to the government. Additionally, regardless of quantifiable damages, courts may award between $5,500 and $11,000 in civil penalties for each statutory violation.

Many courts have defined “violation” broadly to mean each separate invoice relating to a false claim. As a result, companies with numerous invoices can face enormous civil penalties, even when the objective damage to the government is minor. The Bunk court acknowledged that such a broad interpretation is not statutorily mandated, but is “a monster of [the court’s] creation.” Nevertheless, the Bunk court found itself “entirely comfortable with that proposition,” even though the number of false invoices “is hardly a perfect indicator of the relative liability that ought to attach to an FCA defendant.”

In Bunk, the Fourth Circuit overturned a lower court decision refusing to apply the civil penalty to over 9,000 defense contractor invoices because doing so would result in more than $50 million in fines. The lower court found that such large fines would violate the Eighth Amendment to the U.S. Constitution, which prohibits excessive fines. The relator, Bunk, offered to accept “only” $24 million, but the lower court believed it did not have the authority to reduce the statutory fine.

The Fourth Circuit agreed that a penalty greater than $50 million is excessive, but disagreed that the lower court could not impose the lower amount that Bunk proposed. Reviewing Bunk’s request, the Fourth Circuit held that a $24 million penalty was not “grossly disproportional” to the severity of Gosselin’s anti-competitive and fraudulent offenses that involved colluding to fix prices and control competition in securing overseas government defense contracts. Gosselin’s conduct had caused actual damages to the government of $865,000, multiplied to over $2.5 million by the terms of the FCA. The Bunk court held that not allowing the lower court to award the requested $24 million would perversely incentivize companies to file thousands of fraudulent claims and then use the sheer volume of invoices as a shield against FCA civil penalties.

Bunk reinforces the importance of two fundamental compliance principles. First, it is critically important for businesses involved in government-funded projects or programs to create and maintain a robust compliance process related to their invoicing as part of an overall culture of compliance. Second, businesses should encourage—and require—prompt reporting of any suspected FCA violations, before the number of invoices at issue can create a basis for civil penalties that swamp the amount of actual damages. For example, companies can require employees who are tasked with invoicing to certify periodically, in writing, that they do not have knowledge of any improper invoices.

Topics:  Employer Liability Issues, False Claims Act, Fines, Retaliation, SCOTUS, Whistleblowers

Published In: Civil Procedure Updates, Civil Remedies Updates, General Business Updates, Government Contracting Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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