Penalized: DOJ Doubles FCA Penalties
DOJ issued regulations on June 29, 2016, nearly doubling FCA penalties from between $5,500 and $11,000 per false claim to between $10,781 and $21,563 per false claim, as required by Congress’ late-2015 amendment to the Federal Civil Penalties Inflation Adjustment Act of 1990.
The bad news will continue. DOJ’s
penalty adjustment is only the first of what will be yearly FCA penalty
increases. This was simply a “catch up adjustment.” 28
U.S.C. § 2461 note. Congress instructed agencies to adjust penalties each January starting
in 2017. DOJ’s FCA adjustment matches adjustments
made by the Railroad Retirement Board (RRB) and the Department of Commerce
(DOC) over the previous two months.
The only silver lining in the DOJ’s
adjustment is that the increased penalties apply only to FCA violations that occurred
after November 2, 2015. FCA defendants
whose alleged conduct occurred prior to that date will face the earlier $5,500
to $11,000 FCA penalties. This is better than expected, since the amendment
allowed the adjustments to be fully retroactive. By contrast, DOC’s FCA penalty adjustment is
fully retroactive without limitation and RRB’s is not retroactive at all. 81
Fed. Reg. at 26129 (May
2, 2016) (to be codified at 20 C.F.R. § 356.3) (RRB Adjustment); 81
Fed. Reg. at 36456 (June
7, 2016) (to be codified at 15 C.F.R. § 6.4) (DOC Adjustment).
The adjustments do raise questions. First, which agency’s penalties apply in a
given case? Congress instructed agencies
to adjust penalties “within the[ir] jurisdiction,” and the FCA is clearly
within DOJ’s jurisdiction because only DOJ can investigate and bring FCA cases. See 28 C.F.R. §
0.45(d); 31 U.S.C. § 3730(a), (b)(1). But perhaps false claims made to RRB or
false statements material to failing to pay customs duties to DOC fall under
the jurisdiction of those agencies and are subject to those agencies’ penalties
and corresponding retroactivity rules (see our earlier Law360 article on this topic for discussion of this issue).
Second, will DOJ (and other agencies)
make future annual adjustments retroactive? DOJ could make each annual adjustment apply to
all violations after November 2, 2015. If that is the case, an FCA defendant in
a pending case would face penalties that ratchet upwards every January while
the case continues. Neither the amendment nor DOJ’s regulations provide
guidance on this point.
Third, do these doubled penalties violate the
Excessive Fines Clause of the Eighth Amendment? Some defendants and judges already have said that in specific
circumstances, pre-adjustment FCA penalties can violate Eighth Amendment. E.g., United States v. Advance Tool Co., 902 F. Supp. 1011, 1018 (W.D. Mo. 1995); United States ex rel. Smith v. Gilbert
Realty Co., 840 F. Supp. 71, 75
(E.D. Mich. 1993). While these courts are
in the minority, DOJ’s recent increase might cross the line in the eyes of some
courts. DOJ and/or relators may voluntarily reduce their claimed penalties in an
attempt to avoid Eighth Amendment concerns, as they have at least once before. United States ex rel. Bunk v. Gosselin
World Wide Moving, N.V.,
741 F.3d 390, 395, 405-08 (4th Cir. 2013).