Author: Rebecca A. Worthington, Esquire

In a decision sure to generate comment during the new year, the Fourth Circuit ruled in United States ex rel. Bunk v. Gosselin World Wide Moving, No. 12-1369, 2013 U.S. App. LEXIS 25225 (Dec. 19, 2013), that penalties of some amount must be awarded for violations of the civil False Claims Act even though the trial court had determined the government suffered no economic damage.  Even though this case does not involve a health care provider, it is an important case to monitor because of the FCA implications.

Following a trial, the relator sought to have a civil penalty of between $5,500 and $11,000 assessed as to 9,136 invoices.  The lower court (Eastern District of Virginia) determined that the potential award under the FCA would exceed more than $50 million, and would therefore contravene the Excessive Fines Clause of the Eighth Amendment.  The court concluded that it was unauthorized by the FCA to award less than the statutory minimum per claim, and awarded nothing.  The Fourth Circuit found that the lower court’s reasoning did not further the FCA’s primary purpose of making the government whole, and that “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.”

Additionally, the Fourth Circuit disagreed with the lower court’s conclusion that there was insufficient evidence of economic harm to the government; to the contrary, there was “no doubt” that the government suffered significant opportunity costs.   Moreover, the Fourth Circuit noted that for purposes of Excessive Fines Clause analysis, the concept of harm does not need to be limited to the economic realm: “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.”  The Fourth Circuit instructed lower courts to consider “the award’s deterrent effect on the defendant and on others perhaps contemplating a related course of fraudulent conduct.”  The Fourth Circuit ordered an entry of judgment on behalf of the relator for $24 million, holding that such an amount would not violate the Eighth Amendment.

The Fourth Circuit’s decision is another cautionary tale to everyone submitting claims to the government, including health care providers.  It remains to be seen whether other circuits will follow this decision or whether it will be reviewed by the Supreme Court.  In the meantime, some circuits look to whether economic harm was suffered when awarding damages.  See, e.g., United States v. Anchor Mortg. Corp., 711 F.3d 745 (7th Cir. 2013) (holding that damages must be based on the difference between a contract price and the value of what arrived); United States ex rel. Davis v. District of Columbia, 679 F.3d 832 (D.C. Cir. 2012) (“The government got what it paid for and there are no damages.”).   These decisions may be useful tools for asserting that penalties are inappropriate in the absence of any economic harm.

About the Author:  Rebecca A. Worthington is an associate in the Washington, D.C., office of Squire Sanders.  She practices primarily in the Litigation;  Government Enforcement, Investigations and Global Compliance; and the FCPA/UK Bribery Act and Anticorruption practice groups.