Opinion
97-CV-1656 (JMR/FLN).
August 20, 2001
ORDER
After a trial by jury, defendants were found to have submitted false claims in an effort to defraud the United States. Although the jury determined the factual question of whether false claims were submitted, it did not determine the legal question of how many false claims were involved. That question was referred to the Honorable Franklin L. Noel, United States Chief Magistrate Judge, who issued a Report and Recommendation on April 26, 2001, finding that defendants submitted 336 false claims. Defendants timely filed their objection to the Report, pursuant to Local Rule 72.1(c)(2).
The jury rendered its verdict on December 5, 2000.
The False Claims Act ("FCA"), 31 U.S.C. § 3729-3733, mandates a fine between $5,000 and $10,000 for each false claim, making the precise number of false claims involved in this case a necessary question.
The Court has made a de novo review of the record herein, and finds the Magistrate correctly applied prevailing law to the facts of this case. Accordingly, the Court adopts the Magistrate's calculation of the number of false claims.
By doing so, a concern of constitutional dimension is raised: whether a fine ranging from $1.68 million to $3.36 million violates the Excessive Fines Clause of the Eighth Amendment to the United States Constitution. Defendants, understandably, claim that it does. Plaintiff, equally understandably, is confident that even the maximum fine passes constitutional muster.
"Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted." U.S. Const. amend. VIII.
The FCA requires the Court to impose a fine ranging between $5,000 and $10,000 for each false claim. 31 U.S.C. § 3729(a). Imposition of the fine is not discretionary. See United States v. Advance Tool Co., 902 F. Supp. 1011, 1018 (W.D. Mo. 1995). However, constitutional concerns trump even statutory mandates, and this Court must independently ensure that any fine imposed comports with the demands of the Eighth Amendment.Id. see also United States ex rel. Smith v. Gilbert Realty Co., 840 F. Supp. 71 (E.D. Mich. 1993).
As an initial matter, the Court notes it is not at all certain that the Excessive Fines Clause even applies. The history of the Clause reveals it "was intended to limit only those fines directly imposed by, and payable to, the government." Browning-Ferris Industries v. Kelco Distosal, Inc., 492 U.S. 257, 268 (1989). This comports with the Eighth Amendment's overall purpose: to limit "the steps a government may take against an individual, whether it be keeping him in prison, imposing excessive monetary sanctions, or using cruel and unusual punishments." Id. at 275.
Certainly the Excessive Fines Clause protects individuals against the government's prosecutorial power; but whether its protection extends beyond individuals to corporations, and whether it extends beyond direct government action to private qui tam actions, is less certain. Id. at 276 n. 21 (leaving open the question whether the Excessive Fines Clause applies to qui tam actions); Id. at 283-85 (O'Connor, J., concurring in part and dissenting in part) (addressing the open question of whether the Eighth Amendment applies to corporations).
Here, the Court faces a qui tam action brought by an individual on behalf of the government, against a variety of individual and corporate defendants. The government, after being given the option, declined to intervene, and allowed the entire case to be assumed and tried by the individual plaintiff. Whether the Excessive Fines Clause actually applies to any fine imposed under these circumstances, is murky at best. The Court need not resolve the scope of the Eighth Amendment's reach, however, for whether or not the Excessive Fines Clause applies, the presumptive fine is not excessive as a matter of law.
A fine is excessive under the Constitution if two conditions are met: (1) the payment to the government constitutes punishment for an offense; and (2) the payment is grossly disproportionate to the gravity of that offense. United States v. Bajakajian, 524 U.S. 321, 327-27, 334 (1998). Fines imposed under the FCA are recognized, at least in part, to be punitive. United States v. Bornstein, 423 U.S. 303, 309 n. 5 (1976); see also United States v. Mackby, 243 F.3d 1159 (9th Cir. 2001). The Court thus focuses its inquiry on the second prong — whether the presumptive fine here would be grossly disproportionate to defendants' offense.
"The touchstone of the constitutional inquiry under the Excessive Fines Clause is the principle of proportionality: The amount of the [fine] must bear some relationship to the gravity of the offense that it is designed to punish." Bajakajian, 524 U.S. at 334. The jury here weighed the evidence and found defendants had engaged in 11 separate schemes to defraud the government, each involving multiple false claims. The jury further decided defendants retaliated against plaintiff by firing him for reporting the intended fraudulent activities. Although the jury found the schemes did not result in any actual loss to the government, it awarded plaintiff $771,736 for lost income resulting from his retaliatory discharge.
The jury awarded plaintiff $171,736 in past lost wages and benefits, and $428,264 in future lost wages and benefits. Under the FCA, plaintiff's back pay damages are doubled. 31 U.S.C. § 3730(h).
Defendants now contend a fine exceeding one million dollars, in a case where the government has suffered no loss, is grossly disproportionate to the offense. Defendants are wrong. Their argument ignores the reality of the harm caused to plaintiff and the attempted harm to the United States. It also ignores the fact that monetary harm would have redounded to the government but for plaintiff's whistleblowing, which alerted government auditors to defendants' activities.
The jury determined that defendants engaged in a deliberate scheme, broad in both scope and duration, to pilfer from the government fisc for their own benefit. They attempted to conceal their illegal billing practices by discharging plaintiff when he reported their financial improprieties. Defendants' illegal conduct forced the government to engage in a lengthy audit process to reconcile the various irregularities, and forced plaintiff to pursue legal recourse for his retaliatory discharge. The jury awarded plaintiff substantial personal damages as recompense for the harm caused by defendants as they pursued their scheme to defraud the government. The jury's verdict makes clear that defendants' conduct resulted in harm both real and substantial.
Admittedly, the bulk of the injury was suffered by plaintiff, not the government. But the fact that there was no actual dollar loss to the government does not preclude a fine being imposed on defendants. The FCA does not require monetary loss as a prerequisite to the imposition of a fine. See U.S. ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991). Defendants' situation is equivalent to a bank robber being apprehended before departing the bank — while there is no dollar loss, the full force of the criminal law applies, and a fine can constitutionally be imposed as part of the penalty. The Court cannot find the mandated fine disproportionate to the gravity of defendants' offense. Defendants' wrong consisted of submitting false claims, and they did so repeatedly. The fact that the false claims did not succeed does not ameliorate the offense.
Defendants will be assessed $5,000 per false claim, resulting in a total fine of $1,680,000. The Court has assessed the least amount allowed by statute in recognition of the de minimus loss to the government, which was deprived of time, but not money, as a result of defendants' fraud. The Court awards to plaintiff, as the original source of the information and the prime mover of the lawsuit, 30 percent of that fine. 31 U.S.C. § 3730(d)(2).
The Court notes that the fine assessed is a multiplier of 2.2 times the damages the jury found were suffered by plaintiff. As the Supreme Court has noted, "We need not, and indeed we cannot, draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case. We can say, however, that general concerns of reasonableness . . . properly enter into the constitutional calculus." Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1, 18 (1991) (quoted in BMW v. Gore, 517 U.S. 559, 582-83 (1996)). The Court considers a fine amounting, essentially, to double damages to be well within the bounds of reasonableness and proportionality.
Accordingly, IT IS ORDERED that:
1. Pursuant to 31 U.S.C. § 3729(a), defendants are fined $1,680,000, of which 30% shall be paid to plaintiff Patrick Hays. Defendants are jointly and severally liable for that amount.
A defendant's ability to pay a fine is a factor under the Excessive Fines Clause. United States v. Litpert, 148 F.3d 974, 978 (8th Cir. 1998). None of the defendants, corporate or individual, contend they are unable to pay, merely that they are unwilling to do so.
2. Pursuant to 31 U.S.C. § 3730(h), defendants shall pay plaintiff Patrick Hays $771,736, plus interest on the back pay amount.
3. Plaintiff is entitled to costs and reasonable attorney's fees in an amount to be determined by the Magistrate Judge.
LET JUDGMENT BE ENTERED ACCORDINGLY.