Tuesday, April 10, 2012

False Claims Act Penalties Unconstitutional In Whistleblower Case

Following a whistleblower trial in which a Virginia federal jury found Birkart Globalistics GmbH guilty of submitting 9,136 fraudulent invoices under contracts for moving household goods for U. S. military families to and from bases in Belgium, Germany, Italy, Luxemburg and The Netherlands, U. S District Judge Anthony J. Trenga declined to impose any civil penalty at all on the company, ruling that the apparently mandatory minimum civil penalty under the False Claims Act of over $50 million was unconstitutionally disproportional to the harm caused by the price fixing found by the jury, and that the False Claims Act permitted no deviation from the range of penalties set out in the statute. Since the statutory minimum penalty was impermissible under the Eighth Amendment as cruel and unusual punishment, Judge Trenga decided, he had no authority to fashion a lesser, constitutional penalty, and therefore could impose no penalty at all.

Federal contracting officials held a pre-bid meeting at a U. S. military base in Grafenwoehr, Germany, for prospective bidders on the goods moving contract before bids were due. Immediately following that meeting, several prospective bidders met in the base cafeteria to discuss subcontracting with each other to divide up the European territory covered by the contract, and fixed subcontract prices within each of the allocated territories, in contravention of the “Certificate of Independent Pricing” required of each bidder. When the contract was awarded to Birkart, each of the 9,136 separate invoices it submitted to the government under the contract became a separate violation of the False Claims Act, subject to a minimum statutory penalty of $5,500.00.

Kurt Bunk, a Birkart employee, brought the whistleblower case against his employer, seeking the whistleblower’s reward share of the $50 million in civil penalties. The U. S. government refused to join in Bunk’s whistleblower lawsuit, in which Bunk’s attorneys obtained a jury verdict of liability against Birkart under the False Claims Act. In ruling that the proposed civil penalties would violate the Eight Amendment’s ban on cruel and unusual punishment, Judge Trenga decided that, while Burkart’s price fixing scheme did corrupt the contracting process, there was no proof the government actually overpaid Burkart for the moving services, and therefore a $50 million penalty would be unconstitutioinally disproportionate to Burkart’s profit under the contract of merely $150,000.00.

In his opinion, Judge Trenga considered the possibility of imposing a single penalty of $11,000.00, or in the alternative a penalty of $1.5 million, which he concluded would be the maximum constitutionally permissible under the facts of the case. He wrote the reasoning behind these alternative results in his opinion, in case a reviewing court should later determine that he had authority to remit the statutory penalty to a lesser amount when the statutory minimum was unconstitutional. However, until such a ruling might be issued by a higher court, Judge Trenga declined to impose any penalty at all in which the whistleblower might participate.

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