In the modern application of the False Claims Act, where multi-million or even multi-billion dollar settlements and fines are increasingly common, a recent case demonstrates that there is some limit and rationality to the financial exposure that a government contractor may face. In United States ex. rel. Bunk v. Birkhart Globistics, 02-CV-1168 (E.D. Va. Feb. 14, 2012), after a jury found in favor of the Plaintiffs, Judge Anthony J. Trenga of the United States District Court for the Eastern District of Virginia refused to apply the mandatory civil penalty of $50,248,000 because it constituted an unconstitutionally excessive fine, and awarded no civil penalty.
The Department of Defense Contracting Office in Germany solicited bids for the transportation of military household goods owned by U.S. military personnel and their families between U.S. military installations in Europe. Three companies, Gosselin, ITO, and Viktoria, discussed and agreed among themselves as to the prices they would charge and the territories they would service, and upon submission of the bids, a false certificate of independent pricing was submitted stating that “the prices in this offer have been arrived at independently.”
The Defendants filed 9,136 invoices under the contract, and pursuant to 31 U.S.C. §3729, the minimum civil penalty was no less than $5,500 and no more than $11,000 per claim, rendering a staggering penalty of $50,248,000 to $100,496,000.
The Court analyzed whether the civil penalty was “grossly disproportional to the gravity of a defendant’s offense.” The Plaintiffs claimed that the Defendants caused the government to pay approximately three to five million dollars more than it should have. Furthermore, the Defendants’ level of profit for the subject services was $150,000. Finally, the Court held that although the false initial certification was submitted with the initial bid, none of the 9,136 invoices contained any factually false information and were only false because of the initial false certification. The Court held, therefore, that the fine was grossly disproportional to the harm caused by the Defendants.
The Court addressed whether it could fashion a discretionary penalty as opposed to the mandated civil penalty. The Court stated that if it were permitted to order a discretionary penalty, the outer limits of the constitution would be ten times the Defendant’s gain, or $1.5 million, and the appropriate civil penalty based on the facts and circumstances of the case was $500,000. Nevertheless, the Court determined that it did not have the authority to exercise such discretion, and did not order a civil penalty.
Although the ruling will likely be challenged on appeal, the Court’s approach in analyzing the harm to the government, the profits to the Defendant, and the overall proportionality to the mandatory civil penalty structure under the False Claims Act provides an avenue to attack exorbitant, and potentially unconstitutional, civil penalties.
Brian Stolarz is the attorney responsible for the content of this article.