Federal False Claims Act Penalties Increase
As regular readers know, any person violating the FCA is liable to the United States for treble damages, attorney’s fees and costs, and civil penalties of not less than $5,500 and not more than $11,000 per false claim submitted. These civil penalties — which have been a part of the federal False Claims Act since the very beginning in 1863 — are set to increase this summer.
Section 701 of the Bipartisan Budget Act of 2015, Public Law 114-74 (Nov. 2, 2015) required federal agencies to publish regulations adjusting the amount of civil monetary penalties within the jurisdiction of each agency not later than July 1, 2016. The Department of Justice published its proposed penalty amounts on June 30, 2016.
The penalty will increase to a minimum of $10,781 and a maximum of $21,563. If these penalties seem severe, consider the following: first, the penalty amounts have not been raised for more than ten years, and maybe as long as twenty years. Second, if the penalties seem high, consider that the original FCA carried a civil penalty of $2,000.00 per false claim in 1863 when it was passed. If we calculate that amount in today’s dollars, it would equate to a penalty of roughly $38, 878.04 for each false claim after inflation.
The increased civil penalties apply to acts occurring on or after August 1, 2016.
The challenge — and opportunity — of civil penalties
Historically, DOJ has used penalties as an incentive to settle — that is, DOJ has taken the position that if a case must be litigated, civil penalties will be sought, but if a defendant is willing to accept a settlement, the penalties can be compromised. As a result, there is not as much case law on the topic of civil penalties as there might otherwise be.
One of the more interesting questions in FCA litigation involves determining the number of claims for which defendants should be subject to civil penalties. While it is clear that multiple penalties are possible under the FCA, counsel should be aware that large penalty awards could be subject to challenge under the Eighth Amendment’s Excessive Fines Clause if disproportionate to the amount of the damages to the government.
The number of civil penalties in a given case is a question of fact for the jury to decide. Traditionally it was thought that courts lacked discretion to reduce the number of the penalties once a jury had made a finding but the Fourth Circuit Court of Appeals reached a different result in a 2013 case. In United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., the Fourth Circuit found that the district court had authority to enter judgment against the defendant for something other than the 9,136 false claims found by the jury where the relator was willing to accept a remittitur to $24 million to bring the penalty within the constitutional limits of the Eighth Amendment’s Excessive Fines Clause.
What about the Virginia Fraud Against Taxpayers Act?
The Commonwealth is required to update the Virginia Fraud Against Taxpayers Act to keep pace with any changes to the federal FCA, and that includes the amount of the civil penalties. In the Commonwealth the General Assembly will need to act on increased penalties in the 2017 General Assembly session.
And rest assured that we will keep our readers abreast of any changes to the law…
