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Contract – $24M False Claims Penalty Not ‘Excessive’

By: S.C. Lawyers Weekly staff//January 8, 2014

Contract – $24M False Claims Penalty Not ‘Excessive’

By: S.C. Lawyers Weekly staff//January 8, 2014

U.S. ex rel. Kurt Bunk v. Gosselin World Wide Moving NV (Lawyers Weekly No. 001-001-14, 49 pp.) (King, J.) No. 12-1369, Dec. 19, 2013; USDC at Alexandria, Va. (Trenga, J.) 4th Cir.

Holding: In awarding a civil penalty in a False Claims Act suit against a government contractor who moved U.S. military personnel around the world, the district court erred in determining that an award in excess of $50 million, to cover over 9,000 false invoices submitted by the contractor, would violate the constitutional Excessive Fines Clause; the 4th Circuit reverses and remands for entry of the relator’s requested award of $24 million.

We conclude the relator possessed standing to sue for civil penalties while bypassing the prospect of a damages award, and we affirm the district court judgment in his favor. To the extent the court denied the relator recovery of any penalties, we reverse and remand for entry of his requested award of $24 million, an amount we deem to be consistent with the Constitution. Finally, we are of the opinion that the Shipping Act confers no immunity upon Gosselin World Wide Moving for any part of the government’s FCA claim; we vacate the contrary ruling in favor of Gosselin and remand the misadjudicated portion of the claim for further proceedings.

The jury returned a verdict in favor of Gosselin as to one portion of the government’s FCA claim, but the district court already had ruled Gosselin liable as a matter of law on another portion of the FCA claim, and the jury found the government had proved 4,351 instances of false or fraudulent claims. The jury also found Gosselin culpable under the FCA for its role in the Direct Procurement Method (DPM) scheme.

The district court entered judgment for the U.S. in the sum of $5,500, reflecting the court’s conclusion that the whole of Gosselin’s bid-rigging misconduct established nothing more than a baseline false claim, for which the government – in the absence of more sophisticated proof – was entitled to receive only a single civil penalty. Considering the damages remedy, the district court observed the government had collected some $14 million from settling codefendants, an amount far in excess of the presumptive damages (the $865,000 Gosselin paid as restitution in the criminal proceedings, with liability trebled under the FCA to $2,595,000). The district court decided Gosselin was entitled to a full offset, with no damages remaining payable. Finally, the court denied Gosselin’s motion for judgment as a matter of law on count II of the relator’s complaint and held Gosselin liable for 9,136 false claims.

The district court agreed with Gosselin that a multi-million dollar award based on each of the false claims as a discrete basis for liability would be grossly out of proportion to the misconduct and violate the constitutional proscription against excessive fines. The court rejected the relator’s proposal to accept a $24 million settlement. The court awarded a single civil penalty of $5,500 in favor of the U.S.

The 4th Circuit rejects Gosselin’s argument that the relator, by forgoing proof of damages and seeking only penalties for the government’s sovereignty injury, lacked standing to sue. Successful FCA relators can and do recover both damages and civil penalties. In holding that relators seeking solely civil penalties enjoy standing to sue, we find ourselves in agreement with the two other circuits that have decided the issue, the 5th and 10th Circuits. We exercise our discretion to decline ruling on Gosselin’s newly raised Article II challenge to the relator’s standing.

We reluctantly acknowledge that the perceived tension between the FCA and the Excessive Fines Clause of the Eighth Amendment is a monster of our own creation. However, an award of nothing at all because the claims were so voluminous provides a perverse incentive for dishonest contractors to generate as many false claims as possible, siphoning ever more resources from the government. Though we agree the number of false invoices presented is hardly a perfect indicator of the relative liability that ought to attach to an FCA defendant, injustice is avoided in the particular case by the discretion afforded the government and a relator to accept reduced penalties within constitutional limits, as ultimately adjudged by the courts.

The prevalence of defense contractor scams, as often portrayed in the media, shakes the public’s faith in the government’s competence and may encourage others similarly situated to act in a like fashion. Under the circumstances, we are satisfied that the entry of judgment on behalf of the relator for $24 million on the DPM claim would not constitute an excessive fine under the Eighth Amendment. To the extent the district court concluded the constitutional threshold could not exceed $1.5 million, we have come to a different conclusion, on de novo review.

The judgment of the district court is affirmed as to Gosselin’s cross-appeal and as to entry of judgment in favor of the relator. We reverse and remand the court’s entry of no monetary award, instructing it to amend the judgment to award $24 million. We vacate the judgment in favor of the U.S. so it may conduct further proceedings on what remains of the government’s FCA claim and reenter judgment as appropriate.

Concurrence & Dissent

Shedd, J.: I concur in all but part III-C of the majority opinion. In my view, the district court correctly determined that Gosselin’s activity was immunized by the Shipping Act, 46 U.S.C. App. § 1706(a)(4), and I would affirm substantially for the reasons given by the district court.

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