False Claims Act Penalties
By: Joel M. Androphyi
1. The General Rule
The 1986 amendments set the range of civil penalties for violations of the False Claims Act (“FCA”) from $5,000 to $10,000, in addition to trebling actual damages.1 In 1990, the Federal Civil Penalties Inflation Adjustment Act (“FCPIAA”) was enacted to adjust federal fines and penalties to the rate of inflation.2 The FCPIAA permits inflation adjustments to be made every five years, if needed, to maintain the effectiveness of civil fines and penalties.3 In 1999, pursuant to the FCPIAA, the Department of Justice increased the range of penalties for FCA violations from $5,500 to $11,000.4 Like the trebling feature, the penalties authorized under the FCA are mandatory and are not subject to a court’s discretion.5
2. Determining the Number of Penalties
The 1986 amendments to the FCA expressly stated that each separate false claim constitutes a claim for which a penalty shall be imposed, even if separate claims are combined and submitted together.6 In order for a court to impose a civil penalty, the court must determine how many distinct violations occurred. This is most difficult in cases where a subcontractor causes a prime contractor to submit false claims to the Government.7 The key issue is whether the subcontractor should be liable for each claim submitted by the prime contractor or only for acts committed by the subcontractor.8 In United States v. Bornstein, the Supreme Court held that determining the number of claims requires an analysis of the specific conduct of the person being penalized.9 For example, if the subcontractor committed one act that caused the prime contractor to submit a false claim, the subcontractor would be liable for a single penalty assessment.10 If a single act of the subcontractor caused the prime contractor to submit three false claims to the government, the subcontractor would still be liable for only one penalty assessment.11 However, if the subcontractor committed three acts that caused the prime contractor to submit a single false claim, the subcontractor would be liable for three penalty assessments, one for each act that caused the false claim to be submitted.12
Determining the number of claims in the Medicare fraud context can be difficult. A single Medicare reimbursement form may include several distinct claims for payment. For Government reimbursement, a qualified physician submits an HCFA 1500 Form containing separate and distinct codes that detail services performed for particular patients.13 If the physician submits several false codes on a single reimbursement form, the Government should be awarded penalties for each false code submitted within a form. However, most courts have awarded penalties for each form submitted to the Government, nothwithstanding the number of individual false codes inserted on each form.14 This result seems at odds with the express language of the 1986 amendments and the Supreme Court’s decision in Bornstein, which determined the number of false claims by analyzing the defendant’s conduct.15
3. Determining the Level of Penalties
The FCA does not expressly provide a method to determine the penalty amount to assess within the range of $5,500 to $11,000. The Supreme Court has held that a district court has discretion in determining the amount awarded as civil penalties.16 Courts have differed in exercising this discretion. Some courts consider Government expenses incurred investigating and litigating a violation when they determine the level of penalty to assess.17 Some courts base the level of penalty on the gravity of the offense, even if the Government fails to present evidence supporting a higher amount, or if it has been fully compensated by actual damages.18 Other courts refuse to award penalties greater than the minimum amount if the Government fails to justify a higher penalty.19
4. Constitutional Issues Relating to Damages and Penalties
a. Double Jeopardy
The Double Jeopardy Clause of the Fifth Amendment prohibits repeated prosecution and multiple punishments for the same offense.20 The purpose of the FCA, however, is to compensate the Government for damages resulting from fraud.21 The provisions for multiple damages and civil penalties are intended to compensate the Government for other costs that were excluded from the calculation of actual damages, including investigation and detection costs.22 The FCA and its provisions awarding multiple actual damages and civil penalties were nonpunitive as long as a rational relationship existed between the award and the remedial purpose.23
b. Excessive Fines
Penalties that are disproportionate to an offense may violate the Excessive Fines Clause. The court will look at the gravity of the violation and actual loss to the Government to determine whether penalties are excessive.24
- 31 U.S.C. §§ 3729(a).
- Pub.L.No. 101-410, 104 Stat 890 (Jan. 23, 1990).
- 28 C.F.R. § 85.3(a)(9).
- 31 U.S.C. §§ 3729(a): “Any person who violates [the above statutes] is liable to the United States Government for a civil penalty of not less than $5,000 and not more that $10,000.” These amounts have been increased for inflation. See § 4(b) infra discussing the constitutionality of civil penalties under the Excessive Fines Clause of the Eighth Amendment.
- S. Rep. No. 345, 99th Cong., 2nd Sess. 9 (July 28, 1986). 1986 U.S. Code & Admin. News. 5226
- United States v. Bornstein, 423 U.S. 303, 313, 96. S.Ct. 523, 46 L.Ed.2d 514 (1976).
- In cases where false claims submitted by a prime contractor are in issue, the number of compensable infractions is generally deemed to be the number of individual false payment demands that the contractor made to the Government, See, e.g., Bornstein,id. 423 U.S. at 309.
- Bornstein, 423 U.S. at 309.
- Id., 423 U.S. at 312.
- United States v. Krizek, 192 F.3d 1024, 1026 (D.C. Cir. 1999).
- See S.Rep. No. 345, 99th Cong., 2nd Sess. 9 (July 28, 1986), 1986 U.S. Code & Admin. News 5226, 5274. See also United States v. Bornstein, 423 U.S. 303.
- United States v. ITT Continental Baking Co., 420 U.S. 223, 230, 95 S.Ct. 926, 43 L.Ed.2d 148 (1975).
- United States v. Peters, 927 F. Supp. 363, 369 (D. Neb. 1996).
- See. e.g.:
Sixth Circuit: United States v. Macomb Contracting Corp., 763 F. Supp. 272 (M.D. Tenn. 1990).
Eleventh Circuit: United States v. Hill, 676 F. Supp 1158 (N.D. Fla. 1987) (imposing maximum of $10,000 for each false claim submitted to the Small Business Administration to obtain funding).
- United States v. Fliegler, 765 F. Supp. 688 (E.D.N.Y. 1990).
- See, e.g.;
Supreme Court: Hudson v. United States, 522 U.S. 93, 118 S.Ct. 488, 139 L.Ed.2d 450 (1997).
Fourth Circuit: United States v. Glymph, 96 F.3d 722 (4th Cir. 1996).
Fifth Circuit: United States v. Boutte, 907 F. Supp. 239 (E.D. Tex. 1995).
Eleventh Circuit: United States v. Barnette, 10 F.3d 1553 (11th Cir. 1994).
- United States ex rel. Marcus v. Hess, 317 U.S. 537, 549-550 (1943).
- Id. at 551-552 (“We think the chief purpose of the statutes here was to provide for restitution to the government of money taken from it by fraud, and that the device of double damages plus a specific sum was chosen to make sure that the government will be made completely whole.”).
- See, e.g.:
Supreme Court: Marcus v. Hess, id. at 551-552.
Third Circuit: Spritzer v. United States, 968 F. Supp. 206 (D.N.J. 1997) (penalties under the FCA prevent contractors from supplying the Government with substandard products, and important nonpunitive purpose).
Fourth Circuit: United States v. Glymph, 96 F.3d 722 (4th Cir. 1996) (whether penalties constitute punishment for purposes of double jeopardy is not determined from defendant’s perspective, but from the purpose of the statute.)
Fifth Circuit: United States v. Boutte, 907 F. Supp 239 (E.D. Tex. 1995) (award of $1,019,881 to the Government for total actual losses of $301,627 was remedial in nature).
Eleventh Circuit: United States v. Barnette, 10 F.3d 1553 (11th Cir. 1994) (double jeopardy was not violated by civil penalties that Government may recover).
- United States ex rel. Smith v. Gilbert Realty Co., 840 F. Supp.71 at 74. (E.D. Mich. 1993); See also United States v. Bajakajian, 524 U.S. 321, 118 S. Ct. 2028, 141 L. Ed. 2d 314 (1998); United States v. Mackby, 261 F. Supp. 2d 1106 (N.D. Cal. 2002).
iAuthor of treatise, Federal False Claims Act and Qui Tam Litigation, Law Journal Press (2010), research source of the issues discussed in this article.
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