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False Claims Act Statistics, News & Analysis

  • 07
  • February
  • 2017

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The Ratchet Clicks: DOJ Increases FCA Penalties, Applies Worrisome Retroactivity Rule

Last week, we noted that DOJ missed the January 15 deadline for issuing its annual inflation adjustments to the FCA’s penalties. Perhaps DOJ read our post. Two days later, DOJ released for public inspection its FCA penalty adjustment, which was published in the Federal Register and took effect on February 3, 2017. As expected, DOJ has fallen in line with the Department of Commerce’s (“DOC’s”) earlier FCA penalty adjustment, increasing FCA penalties from between $10,781 and $21,563 to between $10,957 and $21,916.

But the real story here is DOJ’s retroactivity provision. DOJ made this annual adjustment retroactive to FCA violations that occurred after November 2, 2015, when Congress passed the law requiring these annual adjustments. 28 U.S.C. 2461 note. This differs from DOC’s FCA penalty adjustments, which are not retroactive, and the Railroad Retirement Board’s FCA penalty adjustments, which are retroactive without any time constraint.

DOJ’s retroactivity rule is cause for concern for potential FCA defendants. If DOJ continues to apply its annual adjustments retroactively to FCA violations after November 2, 2015, then FCA defendants that engaged in potentially problematic conduct after that date will face penalties that ratchet upwards every year the case is pending. Constantly increasing penalties could create a perverse incentive for relators and DOJ to drag out litigation and settlement discussions in cases where penalties are a large part of the recovery, such as in many health care industry cases. At the same time, it could pressure defendants to settle cases quickly to beat the penalty adjustment.

Few FCA cases make it to the point where a court is applying penalties because they either settle or are dismissed before then. And it is generally too early for cases based on conduct after November 2, 2015, to have percolated through litigation to the penalties determination stage. But once cases where these adjusted penalties could apply reach that stage of litigation, we expect to see defendants raise constitutional, statutory, and administrative law challenges to these penalty adjustments and the retroactivity provisions. We will monitor these cases as they come up.

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